Maren Received 12 NQOs (Each Option Gives Her the Right

question 103

Multiple Choice

Maren received 12 NQOs (each option gives her the right to purchase 13 shares of stock for $10 per share) at the time she started working when the stock price was $8 per share. When the share price was $17 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $22 per share. How much gain will Maren recognize on the sale of the shares and how much tax will she pay assuming her marginal tax rate is 37 percent?

• A)$0 gain and $0 tax
• B)$780 gain and $156 tax
• C)$780 gain and $289 tax
• D)$1,872 gain and $374 tax

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Definitions:

Economic Order Quantity (EOQ)

A formula used by businesses to determine the optimal order quantity to minimize total inventory costs.

Carrying Costs

The total cost of holding inventory, which includes warehousing, insurance, spoilage, and opportunity costs.

Ordering Costs

Expenses associated with placing orders for inventory, including administrative expenses, delivery charges, and any other costs related to buying goods or services.

Carrying Costs

Carrying costs are the total expenses associated with holding or storing inventories over a certain period.