ABC, Inc. wishes to provide stock options its CEO, Joe. In order to make ABC indifferent...

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ABC, Inc. wishes to provide stock options its CEO, Joe. In order to make ABC indifferent between ISOs and NQOs, assume that ABC grants some number of ISOs (or NQOs) such that the present value (as of the grant date) of ABC's expected after-tax cost is equivalent to $20,000. ABC discounts after-tax cash flows at 6%. The following timeline indicates the duration between key events and expected future stock values at those dates. Grant Date Exercise Date Sale Date 1 year 1 year $5.00 $10.00 $12.00 That is, the stock is worth $5 per share at the grant date. The exercise price is also $5. The stock is expected to be worth $10.00 one year later when the options are exercised and $12.00 two years later when Joe will sell the stock. (a) How many ISOs or NQOs would ABC grant if t = 10%? What if t = 35%? tc = 10% tc = 35% Numbers of options granted if- ISOS NQOS ABC, Inc. wishes to provide stock options its CEO, Joe. In order to make ABC indifferent between ISOs and NQOs, assume that ABC grants some number of ISOs (or NQOs) such that the present value (as of the grant date) of ABC's expected after-tax cost is equivalent to $20,000. ABC discounts after-tax cash flows at 6%. The following timeline indicates the duration between key events and expected future stock values at those dates. Grant Date Exercise Date Sale Date 1 year 1 year $5.00 $10.00 $12.00 That is, the stock is worth $5 per share at the grant date. The exercise price is also $5. The stock is expected to be worth $10.00 one year later when the options are exercised and $12.00 two years later when Joe will sell the stock. (a) How many ISOs or NQOs would ABC grant if t = 10%? What if t = 35%? tc = 10% tc = 35% Numbers of options granted if- ISOS NQOS

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To determine the number of ISOs or NQOs that ABC would grant under different tax rates we need to ca... View the full answer