On January 1st, year 1, Tyra started working for Hatch Corp. New employees must choose immediately between receiving 7 NQOs (each NQO provides the right to purchase for $5 per share 10 shares of Hatch stock) or 50 restricted shares. Hatch's stock price is $5 on Tyra's start date. Either form of equity-based compensation will vest in two years. Tyra believes that the stock will be worth $15 per share in two years and $25 in four years when she will sell the stock. Tyra's marginal tax rate is 32 percent and her long-term capital gains rate is 15 percent. Assuming that Tyras price predictions are correct, complete the following questions? a. What are the cash-flow effects to Tyra in the year she receives the options, in the year the options vest and she exercises the options, and in the year she sells the stock if she chooses the NQOs? Answer is complete but not entirely correct. Net Cash Flow $ Grant date Exercise date Sale date Total 224 X 105 X 329
b. What are the cash-flow effects to Tyra in the year she receives the restricted stock, in the year the stock vests, and in the year she sells the stock if Tyra chooses the restricted stock? Answer is complete but not entirely correct. Net Cash Flow Grant date 0 Vesting date 240 X Sale date Total 75 315 c. What are the cash-flow effects to Tyra in the year she receives the restricted stock, in the year the stock vests, and in the year she sells the stock if she makes an 83(b) election? Answer is complete but not entirely correct. Grant date Vesting date Net Cash Flow $ 1,250 $ 0 $ 1,250 2,500 Sale date Total