Reference no: EM132468195

In the current year, Jill, age 35, received a job offer with two alternative compensation packages to choose from. The first package offers her $90,000 annual salary with no qualified fringe benefits and requires her to pay $3,500 a year for parking and to purchase life insurance at a cost of $1,000. The second package offers $80,000 annual salary, employer-provided health insurance, annual free parking (worth $320 per month), $200,000 of life insurance (purchasing on her own would have been $1,000 annually), and free flight benefits (she estimates that it will save her $5,000 per year). If Jill chooses the first package, she will purchase the health and life insurance benefits herself at a cost of $1,000 annually after taxes and spend another $5,000 in flights while traveling. Assume her marginal tax rate is 32 percent.

Uniform Premiums for $1,000 of Group-Term Life Insurance Protection

Table Summary: Chart shows cost per $1,000 of life insurance protection for one month per 5-year age bracket.

5 Year Age Bracket Cost per $1,000 of protection for one month

Under 25           .05

25 to 29           .06

30 to 34           .08

35 to 39           .09

40 to 44          .10

45 to 49         .15

50 to 54        .23

55 to 59        .43

60 to 64       .66

65 to 69     1.27

70 +         2.06

Question a1. Which compensation package should she choose?

Question a2. How much would she benefit in after-tax dollars by choosing this compensation package instead of the alternative package?

Question b1. Assume the first package offers $100,000 salary with no qualified benefits instead of $90,000 salary and the other benefits and costs are the same. Which compensation package should she choose?

Question b2. How much would she benefit in after-tax dollars by choosing this package?