Question

13. Rachel receives employer provided health insurance. The employer's cost of the health insurance is $6,800 annually. What is her employer's after-tax cost of providing the health insurance, assuming that the employer's marginal tax rate is 35 percent and is profitable?

MULTIPLE CHOICE

$0

$4,420

$4,198

$6,800

14. Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $15 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren's bargain element?

MULTIPLE CHOICE

$0

$700

$900

$1,500

None of the choices are correct

15. Maren received 10 NQOs (each option gives her the right to purchase 7 shares of stock for $8 per share) at the time she started working when the stock price was $6 per share. When the share price was $18 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $23 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 35 percent?

MULTIPLE CHOICE

$0 gain and $0 tax

$350 gain and $53 tax

$350 gain and $123 tax

$1,050 gain and $158 tax

Answer 1

13.   $4,420 ,

employer's after-tax cost of providing the health insurance =$6,800 * (1-0.35)

= $4420

14.   $700 ,

Maren's bargain element = 10 NDQ options * 10 shares * ($15 market price - $8 exercised price)

= 10 NDQ options * 10 shares * $7

= $700

15. $350 gain and $53 tax ,

realised gain on sale of shares = (70 shares * $23) - (70 shares * $18)

= $1610 - $1260

= $350

  

Tax = realised gain * preferential tax rate

= $350 * 15%

= $53