Seiko’s current salary is $85,000. Her marginal tax rate is 30 percent and she f
ID: 2451252 • Letter: S
Question
Seiko’s current salary is $85,000. Her marginal tax rate is 30 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an office equipment company. Her friend, knowing of her interest in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only $75,000 per year, but it allows employees to purchase one new car per year at a discount of $15,000. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, her current employer offers her a $10,000 raise. Answer the following questions about this analysis.
By how much is the offer better for Seiko on an after tax basis (Assume that Seiko is going to purchase the new car whether she switches jobs or not.)
offer is better by$___________________________
What salary would Seiko need to receive from her current employer to make her financially indifferent (after taxes) between receiving additional salary from her current employer and accepting a position at the auto dealership? (Round your intermediate and final answer to the nearest dollar amount.)
salary received $_____________________________________________
By how much is the offer better for Seiko on an after tax basis (Assume that Seiko is going to purchase the new car whether she switches jobs or not.)
offer is better by$___________________________
What salary would Seiko need to receive from her current employer to make her financially indifferent (after taxes) between receiving additional salary from her current employer and accepting a position at the auto dealership? (Round your intermediate and final answer to the nearest dollar amount.)
salary received $_____________________________________________
Explanation / Answer
Current salary 85,000 TAX @ 30% 25,500 After tax salary 59,500 New salary 75,000 TAX @ 30% 22,500 After tax salary 52,500 non taxable fringe benefit 15,000 Total salary after benefts 67,500 Difference 8,000 offer is better by $ 8000 Salary to be received in order to be in different 96,429 TAX @ 30% 28,929 After tax salary 67,500