Suzanne Received 20 ISOs (Each Option Gives Her the Right

question 107

Essay

Suzanne received 20 ISOs (each option gives her the right to purchase 20 shares of stock for $12 per share)at the time she started working, when the stock price was $13 per share. Three years later, when the share price was $23 per share, she exercised all of her options. If Suzanne holds the shares for two additional years and sells them when the market price is $30, how much gain will Suzanne recognize on the sale and how much tax will she pay, assuming her marginal tax rate is 37 percent?

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Definitions:

Legal Capital Approach

Method of preparing Paid-In Capital by listing the legal section first.

Stock Dividend

It's a dividend payment made in the form of additional shares rather than a cash payout, representing a reinvestment of company earnings.

Stock Split

An action by a company to divide its existing stock into multiple shares to boost liquidity without changing shareholders' equity.

Retained Earnings

The portion of net income left over for the business after it has paid out dividends to its shareholders.