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Item 2

Item 2 5 points

In the current year, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $94,400 annual salary with no qualified fringe benefits and requires her to pay $5,700 a year for parking and to purchase life insurance at a cost of $3,200. The second package offers $82,200 annual salary, employer-provided health insurance, annual free parking (worth $540 per month), $200,000 of life insurance (purchasing on her own would have been $3,200 annually), and free flight benefits (she estimates that it will save her $7,200 per year). If Jill chooses the first package, she will purchase the health and life insurance benefits herself at a cost of $3,200 annually after taxes and spend another $7,200 in flights while traveling. Assume her marginal tax rate is 32 percent. (Use Exhibit 12-8.)

Required:

1. a1. Which compensation package should she choose?
2. a2. How much would she benefit in after-tax dollars by choosing this compensation package instead of the alternative package?
3. b1. Assume the first package offers $123,000 salary with no qualified benefits instead of $94,400 salary and the other benefits and costs are the same. Which compensation package should she choose?
4. b2. How much would she benefit in after-tax dollars by choosing this package?