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Comprehenslve Problem $12-50($LO $12-1,$ LO $12-2,$ LO $12-3)($Algo$)$

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Pratt is ready to graduate and leave College Park. His future employer $($Ferndale Corporation$)$ offers the following four compensatlon packages from which Pratt may choose. Pratt will start working for Ferndale on January $1,$ year $1.$

Assume that the restricted stock Is $1,000$ shares that trade at $\backslash (\backslash$$ $5\backslash )$ per share on the grant date $($January $1,$ year $1)$; shares are expected to be worth $\backslash (\backslash$$ $10\backslash )$ per share on the vesting date at the end of year $1$; and no $83($b$)$ election is made. Assume that the NQOs $(100$ options$)$ each allow the employee to purchase $10$ shares at $\backslash (\backslash$$ $5\backslash )$ exercise price. The stock trades at $\backslash (\backslash$$ $5\backslash )$ per share on the grant date $($January $1,$ year $1)$ and Is expected to be worth $\backslash$$$10$ per share on the vesting date at the end of year $1,$ and the optlons are exercised and sold at the end of the year. Also assume that Pratt spends on average $\backslash (\backslash$$ $3,270\backslash )$ on health$-$related costs that will be covered by Insurance If he had coverage or is an after$-$tax expense if he isn't covered by Insurance $($treat this as a cash outflow$).$ Assume that Pratt's marginal tax rate is $35$ percent. $($Ignore FICA taxes and time value of money considerations$).$ Required:

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?

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What is the after$-$tax value of each compensation package for year $1?$

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