Required information Problem 12-28 (LO 12-1) (The following information applies

Question

Required information Problem 12-28 (LO 12-1) (The following information applies to the questions displayed below) 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 $2,520,000. Option 2 is for'a salary of $1,020,000 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 Problem 12-28 Part d d. What is MMM's expected after- tax cost of providing Ramon with Option 2 if it believes there is a 40 percent chance Ramon will qualify for the performance-based compensation? ted after-tax cost

Explanation / Answer

Expected after tax cost of MMM Corporation = Compensation x (1 - tax rate) x Estimated percentage of qualification

= $2,000,000 x (1 - 0.35) x 40%

= $520,000

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