Fill out the Excel below: Assume the following: 1. The award is tax deductible. 2. Taxes due
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Question:
Fill out the Excel below:
Assume the following:
1. The award is tax deductible.
2. Taxes due are paid in cash immediately.
3. To avoid dilution, the company buys back shares in the market on the same date that the employee exercises the options. However, the options are still equity classified because the entity does not commit to buy back shares from the employees. It chooses to buy them back in the market at its discretion.
Inputs | ||
Corporate tax rate | 25.00% | |
Ordinary income tax rate for the employee | 35.00% | |
Capital gains tax rate for the employee | 20.00% | |
Option is granted at the beginning of Y1 | ||
Stock price on the grant date | 50.00 | |
Exercise price of options | 50.00 | |
Fair value of the option on the grant date | 16.00 | |
Vesting period of the options in years | 2.00 | |
Option is exercised in Y3 | ||
Stock price on the exercise date | 150.00 |
Related Book For
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
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