Your employer is considering paying you deferred compensation in 5 years or a cash bonus of $1

Question:

Your employer is considering paying you deferred compensation in 5 years or a cash bonus of $1 million today. Here are the facts:
• Your tax rate today is 50%.
• Your tax rate in 5 years will be 35%.
• Your employer’s tax rate today is 30%.
• Your employer’s tax rate in 5 years will be 40%.
• Both you and your employer have an after-tax of 7%.
a. What is the highest deferred compensation payment (received 5 years from now) that your employer would be willing to pay?
b. What is the lowest deferred compensation payment (received 5 years from now) that you would settle for?
c. Can you and your employer get together and write a mutually beneficial deferred compensation contract? If so, describe the contract (amount). Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...