Question

Required information [The following information applies to the questions displayed below. Cammie received 100 NQOs (each option provides a right to purchase 10 shares of MNL stock for $10 per share) at the time she started working for MNL Corporation (5/1/Y1) four years ago when MNL's stock price was $8 per share. Now that MNL's stock price is $40 per share (8/15/Y5), she intends to exercise all of her options. After acquiring the 1,000 MNL shares with her options, she held the shares for over one year (10/n/Y6) and sold them at $60 per share. (Leave no answer blank. Enter zero if applicable. Input all amounts as positive values.) a. What are Cammie's taxes due on the grant date (5/n/Y1), exercise date (8/15/Y5), and sale date (10/1/Y6), assuming her ordinary marginal rate is 32 percent and her long-term capital gains rate is 15 percent? Amount Tax on grant date Tax on exercise date Tax on sale date

Answer 1

o Number of shares acquired by c 100 10 1000 shares Amount needed to exercise- no of shares * strike price per share o 1000 10 10000 o Market value of shares no of shares * market price per share 1000 *40 = 40000 o Ordinary incomemarket value of shares-amount needed to exercise 40000-10000 30000 Tax liability in the year of exercise ordinary income *marginal tax rate 30000*32% = 9600

o Amount realized 10000*60-60000 Adjusted basis 40000 Long-term capital gain-60000-40000-20000 Tax liability in the year of sale long term capital gain * marginal tax rate 20000 * 15% 3000.