LCD Consulting provides long$-$term IT implementation assistance to large corporate clients.$$ Its model is to deploy a team of consultants to each client; and that team is headed by a supervising consultant who both manages the project and performs billable hands$-$on work as well.

Nan Holt was assigned last year to the Remand account as the supervising consultant on a $4-$year project with six other junior consultants.$$ With planning completed and the project set to begin next week, Nan had come to realize that one team member, Consultant $$A$,$ would hurt the overall effort.$$ Consultant A$$s technical skills were weak and his client interactions were confrontational.$$

Nan knew that she could immediately hire Consultant $$W$$ from a competitor, whereupon Nan would fire Consultant $$A$.$ Consultant $$W$$ had better technical skills, was a team player, and would be much better with the clients.$$ Importantly, there was no doubt that LCD would earn the final year $($Year $4)$ $$125,000$ on$-$time completion bonus from Remand if $"$W$"$ were on board, and would definitely not earn it were $"$A$"$ to stay.

There were other complications and Nan began making a list:

If $$A$$ stayed:

Nan would spend much more time supervising $$A$$ and would thus lose her own ability to bill Remand $$30,000$ per year in years $1-4.$

If Nan fired $$A$$ and hired $$W:$$

After$-$tax Billings income would rise in years $2,3,$ and $4$ as Remand, pleased with the work of LCD, would give add$-$on assignments with the after$-$tax benefits shown on the template.

LCD would have to pay $$A$$ an immediate severance of $$75,000.$

Additionally, there was a $40\%$ chance that $$A$$ would sue for discrimination. IF $$A$$ sued, then LCD would pay a labor attorney $$25,000$ in Year $1$ and $$15,000$ in Year $2$; and would end up settling the suit by paying $$A$$ $$245,000$ in year $2($this would be in addition to the severance already paid$).$ Importantly, the attorney fees would be tax deductible $($as would the t$=0$ severance payment$)$; but the Year $2$ settlement payment would NOT be tax deductible.

Nan set out to find an answer using a rational, quantitative approach.$$ She was convinced that she could assess the incremental costs and benefits of firing $$A$,$ find an associated annual cash flow, discount those annual cash flows to the present, and then sum them up to get the NPV$.$

She laid out her analysis and started to fill in the numbers as shown on the template below which you can access and download here Download which you can access and download here.$$ And she knew that only the severance and its associated tax benefit would be at t$=0$; all the other cash flows would be in Periods $1-4.$ But now she knew time was short and she had to finish her analysis. $[$Note: The template is in thousands $000$s to make it easier to read and use. $$Your answer will also be in thousands. $$For example, if you get an answer of $"10,"$ that is $$10,000.]$; LCD Consulting

$0007$

Year$->01234$

Known Costs Likelihood

$"$A$"$ Severance $($deductible$)-75100\%$

Possible costs $($using Expected Value$)40\%$

Attorrney Fees $($deductible$)$

Total Deductible Costs

Plus Tax Benefit @$20\%$ Tax Rate

Out$-$of$-$Court Settlement $($NOT deductible$)40\%$

Total Cash Flows Attributable to Known and

Expected Incremental Separation Costs

Known Benefits

After$-$tax Operating Income Changes

Avoided Lost Billings due to Supervision

New "add$-$on$"$ billings attributable to $"$W$"354045$

On$-$time Completiton Bonus if $"$W$"$ on the job $125$

Total Increase in pre$-$tax income

Less Taxes Paid @ $20\%$

Total Cash Flows Attributable to Expected

Incremental Revenue

Total Cash Flow

Discount Factor @ $8\%1\mathrm{.}0000$ I $.$I $0\mathrm{.}08$

Discounted Annual Cash Flow

NP $[1]$; Given that the tax rate for CRT was $20\%$ and that its WACC $($discount rate$)$ was $8\%,$ what value $($positive or negative$)$ did Nan derive from the impacts of firing $$A$$ and hiring $$W$$ shown above $($to the nearest thousand dollars$)?$

Group of answer choices

$$73$

$-$$$83$

$$101$

$$40$

$-$$$62$