You and your employer are considering entering a deferred-compensation arrangement.

• Your employer is prepared to pay you $200,000 today. •

Your employer expects to earn an annual 8% pretax rate of return and to have a tax rate of 21% now and in all future years.

• You have a current tax rate of 40% and anticipate a 33% tax rate in 10 years.

If you take current compensation you will pay taxes on the income immediately. You expect to earn an annual 9% pretax rate of return and pay a 40% tax on all returns. If you accept deferred compensation you anticipate paying 33% in 10 years when you receive the deferred compensation. a. If you accept the current compensation offer today, how much cash will you have after all taxes in 10 years?

Answer rating: 100% (QA)

If current compensation offer is accepted the employer will give 200000 tod... View the full answer