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Suppose a firm faces a current tax rate of 35% but expects this rate to fall to 20% in the future. Employees on average face a current marginal tax rate of 31% but expect this rate to fall to 20% when they retire in 15 years. The firm can earn 12% pretax on its pension investments and 10% after tax on corporate account. Employees on average can earn 10% after tax on their investments.

what is the formula for the after tax compensation for the employee?

Salary versus pension - employer is indifferent because both involve the after-tax cost of a current $100. To the employee, pension will grow to what is the formula for salary to the employee will accumulate to what?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92745918

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