Question

Seiko’s current salary is $85,000. Her marginal tax rate is 32 percent and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an Idaho Office Supply. 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, Idaho Office Supply offers her a $10,000 raise. Answer the following questions about this analysis.

Problem 12-41
Part a a. Assuming it has a 21 percent marginal tax rate, what is the annual after-tax cost to Idaho Office Supply to provide Seiko with the $10,000 increase in salary?

Answer 1

$7,900

Step-by-step explanation:

Given that:

Assuming a marginal tax rate of 21%

Salary Raise = $10000

Annual after-tax cost to Idaho :

Salary raise ( 1 - marginal tax rate)

$10000 ( 1 - 21%)

$10000( 1 - 0.21)

$10000 - $2100

= $7,900