Maxwell is trying to decide whether to accept a salary of $60,000 or a salary of $25,000 plus a bonus of 20% of net income after the bonus as a means of allocating profit among the partners. What amount of income would be necessary so that Maxwell would consider the choices to be equal?

Question

Quizplus · Accepted Answer

Maxwell needs a $35,000 bonus to equate the "salary plus bonus" package to the "salary only" package
Using bonus formula to solve for income:
Bonus
= .2(Income - Bonus)35,000
= .2Income - [.2 F1F1F1S1F1F1F10 35,000]
42,000
= .2Income
210,000
= income

Maxwell Is Trying to Decide Whether to Accept a Salary