Pratt is ready to graduate and leave College Park. His future employer (Ferndale Corp.) offers the following
Question:
Assume that the restricted stock is 1,000 shares that trade at $5 per share on the grant date (January 1, year 1) and are expected to be worth $10 per share on the vesting date at the end of year 1. Assume that the NQOs (100 options that each allow the employee to purchase 10 shares at $5 strike price). The stock trades at $5 per share on the grant date (January 1, year 1) and is expected to be worth $10 per share on the vesting date at the end of year 1. Also assume that Pratt spends on average $3,000 on health-related costs that would be covered by insurance if he has coverage. Assume that Pratt's marginal tax rate is 35 percent.
a) What is the after-tax value of each compensation package for year 1?
b) If Pratt's sole consideration is maximizing after-tax value for year 1, which scheme should he select?
c) Assuming Pratt chooses Option 3 and sells the stock on the vesting date (on the last day of year 1), complete Pratt's Schedule D for the sale of the restricted stock.
Step by Step Answer:
Taxation Of Individuals And Business Entities 2016
ISBN: 9781259334870
7th Edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver