1 Firm B wants to hire Mrs. X to manage its advertising department. The firm offered Mrs. X a three -year employment contract under which it will pay her an
$80,000 annual salary in 0,1 and 2.Firm B’s tax rate for the three-year period is 34 percent. a Assuming an 8 percent discount rate for both Firm B and Mrs. X,
Compute the NPV of Mrs. X’s after-tax cash flow from the employment contract and Firm B’s after -tax cost of employment contract. b To reduce her tax cost, Mrs. X
requests that the salary payment for year 0 be increase $140,000 and the salary payments for year 1 and 2 be reduced to $50,000.How would this revision in the
timing of the payments change your NPV computation for both parties? c Firm B responds to Mrs. X’s request with a counter proposal. It will pay her $140,000 in
year 0 but only $45,000 in years 1 and 2.compute the NPV of Firm B’s after-tax cost under this proposal. From the firm’s perspective, is this proposal superior to
its original (80,000 annually for three years”) d Should Mrs. X accepts the original offer or the counter proposal ? support your conclusion with a comparison of
the NPV of each other.