Yost received 330 NQOs (each option gives Yost the right to purchase 10 shares o
ID: 2534749 • Letter: Y
Question
Yost received 330 NQOs (each option gives Yost the right to purchase 10 shares of Cutter Corporation stock for $22.5 per share) at the time he started working for Cutter Corporation three years ago. Cutter’s stock price was $22.5 per share. Yost exercises all of his options when the share price is $33.5 per share. Two years after acquiring the shares, he sold them at $54.5 per share. (Input all amounts as positive values. Leave no answer blank. Enter zero if applicable.)
a. What are Yost’s taxes due on the grant date, exercise date, and sale date, assuming his ordinary marginal rate is 35 percent and his long-term capital gains rate is 15 percent?
b. What are Cutter Corporation’s tax consequences (amount of deduction and tax savings from deduction) on the grant date, the exercise date, and the date Yost sells the shares, assuming its marginal tax rate is 25 percent?
Explanation / Answer
A)
Grant date ====> Income =0....... Tax =0
Exercise date ====>Income = $36,300...... Tax =$12,705
Sale date =======> Income = $69,300...... Tax =$10,395
B)
Grant date ======> Income =0......Tax =0
Exercise date ====> Income = $36,300...... Tax =$9075
Sales ==========> Income =0....... Tax =0
Sale date =======>
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