In 2016, Jill, age 35, received a job offer with two alternative compensation packages to choose...

In 2016, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $125,000 annual salary with no qualified fringe benefits, requires her to pay $3,200 a year for parking, and pay her life insurance premiums at a cost of $2,100. The second package offers $115,000 annual salary, employer-provided health insurance, annual free parking (worth $310 per month), $212,000 of life insurance (purchasing on her own would have been $2,100 annually), and free flight benefits (she figures that it will save her $6,250 per year). If Jill chooses the first package, she would purchase the health and life insurance benefits herself at a cost of $5,500 annually after taxes and spend another $6,250 in flights while traveling. Assume her marginal tax rate is 28 percent. (Use Exhibit 12-10.) (Round your intermediate computations to the nearest whole dollar amount.) a-1. Which compensation package should she choose? Package 1 offers her $125,000 annual salary with no qualified fringe benefits. Package 2 offers $115,000 annual salary plus health and life insurance benefits. a-2. How much would she benefit in after-tax dollars by choosing this compensation package instead of the other compensation package? b-1. Assume the first package offers $138,000 salary with no qualified benefits instead of $125,000 salary plus benefits. Which compensation package should she choose? Package 1 offers her $138,000 annual salary with no qualified fringe benefits. Package 2 offers $115,000 annual salary plus health and life insurance benefits. b-2. How much would she benefit in after-tax dollars by choosing this package?

Expert Solution

a1.

	In $	In $
	Offer 1	Offer 2
Annual Salary	125000	115000
Tax @28%	35000	32200
Post Tax Salary	90000	82800

Reduction from In hand Salary through out of pocket expenditure
Parking	3200
Life Insurance cover	2100
Health Insurance	3400
Flight Expenses	6250
Total	14950
Perks:
Free Parking		3720
Life Insurance cover		2100
Free Flight Benefits		6250

Net In Hand Salary	75050	82800

a.2 - She Should Choose Package 2 as its more beneficial than PAckage 1 by $ 7,750

b 1 - Assuming that Package 1 offers $ 138,000

	In $	In $
	Offer 1	Offer 2
Annual Salary	138000	115000
Tax @28%	38640	32200
Post Tax Salary	99360	82800


Reduction from In hand Salary through out of pocket expenditure
Parking	3200
Life Insurance cover	2100
Health Insurance	3400

Total	8700

Free Parking		3720
Life Insurance cover		2100


Net In Hand Salary	90660	82800

She should Choose Package 1

b2 - Its more beneficial by $ 7860

ekkarill92 answered 1 year ago

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