Rich Drennen’s personal statement of financial condition at December 31, 20X6, shows net worth of $400,000 before consideration of employee stock options owned on that date. Information relating to the stock options is as follows:

Options are to purchase 10,000 shares of Oglesby Corporation stock.
Options’ exercise price is $10 a share.
Options expire on June 30, 20X7.
Market price of the stock is $25 a share on December 31, 20X6.
The exercise of the options in 20X7 would result in ordinary income taxable at 35 percent.

After giving effect to the stock options, Drennen’s net worth at December 31, 20X6, would be

a. $497,500.

b. $550,000.

c. $562,500.

d. $650,000.