Ramon has finally arrived. He has interviewed for the CEO position with MMM Corp

Question

Ramon has finally arrived. He has interviewed for the CEO position with MMM Corporation. They have presented him with two alternative compensation offers. Alternative 1 is for a straight salary of $2,545,000. Option 2 is for a salary of $1,045,000 and performance-based compensation of up to $2,000,000. Assume that Ramon has a marginal tax rate of 40 percent and MMM has a marginal tax rate of 35 percent. Answer the questions under each of the following alternative scenarios. . What is MMM’s after-tax cost of providing Ramon with Option 1? *2206250 is not the correct answer

Explanation / Answer

Computation of MMM's After tax cost with Option-1 Detail Amount Straight Salary $2,545,000.00 Less: Tax @ 35% * $2545000 $890,750.00 $1,654,250.00 Less: Tax @40% * $1654250 $661,700.00 After tax cost $992,550.00

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