You are a new employee in a startup firm. The value of the firm the day you star
ID: 2782156 • Letter: Y
Question
You are a new employee in a startup firm. The value of the firm the day you start is $30 million. You get a profit interest of 6%.
Five years later you leave the company after being caught in an compromising position with some of the stuffed animals in the break room. Somehow you manage not to be fired for cause, so you get the value of your profit interest.
The firm is now worth $100 million. The capital gains tax rate is 25%, and the ordinary income tax rate is 40%.
How much do you have after tax? Format your answer of $12.34 million as 12.3
Explanation / Answer
Profit interest are taxed at capital gain rate.
Total income from Profit= (100-30)*6%= $4.2 Mn
Tax = 25% * 4.2= $1.05 Mn
Net income =$3.15 Mn
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