Seiko's currently has salary of $130,000, and she fancies European sports cars. She purchases a new auto each year. Seiko is currently a manager for an office equipment company. Her friend, knowing of her interest in sports cars, tells her about a manager position at the local BMW and Porsche dealer. The new position pays only $113,100 per year, but it allows employees to purchase one new car per year at a discount of $23,000. This discount qualifies as a nontaxable fringe benefit. In an effort to keep Seiko as an employee, her current employer offers her a $12,700 raise. Answer the following questions about this analysis (ignore FICA taxes in your analyses). Assume that Seiko's marginal tax rate is 30%.
A. What is the annual after-tax cost to her current employer (office equipment company that has a 35 percent marginal tax rate) to provide Seiko with the $12,700 increase in salary?