Kaijsa Received 20 NQOs (Each Option Gives Her the Right

question 65

Essay

Kaijsa received 20 NQOs (each option gives her the right to purchase 30 shares of stock for $8 per share)from her employer at the time she started working when the stock price was $9 per share.Now that the share price is $18 per share,she intends to exercise all of her options.If Kaijsa holds the shares for two years and sells them when the market price is $25,what is the amount of the deduction and tax savings her employer will receive (assume the employer's marginal tax rate is 30 percent)?

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Definitions:

Market Value Method

An accounting method that values assets or securities at their current market prices rather than at historical costs or book values.

Book Value Method

An accounting technique where assets are valued in the balance sheet at their original cost minus any accumulated depreciation.

Stockholder's Equity

The residual interest in the assets of the corporation after deducting liabilities, representing the ownership interest of shareholders.

Non-interest-bearing Note

A financial instrument or loan that does not accrue interest over its life, meaning the borrower repays only the principal amount.