(Answered) Kevin and elizabeth are negotiating a divorce settlement

Economics

Kevin and Elizabeth are negotiating a divorce settlement. Kevin is in the 35 percent marginal tax bracket and Elizabeth is in the 15 percent marginal tax bracket. Kevin has offered to pay Elizabeth $15,000 each year for 10 years; payments would cease if Elizabeth dies earlier. Elizabeth is willing to settle for that amount only if the payments are tax free because she needs at least $15,000 after tax to meet her expenses.

a. How much would Elizabeth have to receive in taxable alimony payments from Kevin to have the equivalent of a $15,000 tax-free payment?

b. If Kevin agrees to an $18,500 alimony payment, what is the after-tax cash flow for Kevin and Elizabeth? By how much does their cash flow improve over the proposed $15,000 payment?

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