Question

Required information [The following information applies to the questions displayed below.) Leslie participates in IBO's nonqualified deferred compensation plan. For 2019, she is deferring 10 percent of her $300,000 annual salary. Based on her deemed investment choice, Leslie expects to earn a 7 percent before-tax rate of return on her deferred compensation, which she plans to receive in 10 years. Leslie's marginal tax rate in 2019 is 32 percent. IBO's marginal tax rate is 21 percent (ignore payroll taxes in your analysis). (Use Table 1.) (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.) a. Assuming Leslie's marginal tax rate in 10 years (when she receives the distribution) is 33 percent, what is Leslie's after-tax accumulation on the deferred compensation? Leslie's after-tax accumulation |

Answer 1

26 a) Deferred Compensation (300000*10%) After Tax Acumulation 30000 30000 * (1.07)^10 * (1-33) After Tax Acumulation 39540 Deferred Compensation (300000*10%) After Tax Acumulation 32 33 30000 30000 * (1.07)^10 *(1-20) 34 After Tax Acumulation 47212 35 36 c) 37 39 IBO's after tax cost of providing Lelie with $30,000 of Current Compensation is (30000 *(1-.21)= 23,700. IBO should be indifferent between paying her current salary at an after tax cost of 23700 and paying her in 10 years the amount that this would grow to if IBO were to invest this amount and earn 8% after taxes. In 10 Years $23,700 would grow to (23700 *(1.08)^10 = 51167.IBO should be indifferent between paying current salary and paying some amount of deferred compensation that would cost it $51167 after taxes in 10 years. 41 51167 = Deferred Compensation *(1-21) Deferred Compensation = 51167 0.79 Deferred Compensation = 64768