Question

Marlo, a publicly held corporation with a 35 percent marginal tax rate, is negotiating a compensation package with its CEO. In each of the following cases, determine Marlo’s after-tax cost of the compensation. In making your calculation, ignore the employer payroll tax.
a. Marlo will pay its CEO a $1,300,000 annual salary.
b. Marlo will pay its CEO a $900,000 annual salary plus a $500,000 year-end bonus if its gross revenues increase by at least 5 percent for the year. This bonus qualifies as performance-based compensation.


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  • CreatedNovember 03, 2015
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