ESPP_solution - Topic: Employee stock purchase plans...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic: Employee stock purchase plans (ESPPs) The Horgan Corporation’s common stock is worth $10.00 per share today and is appreciating at approximately 10% per year. The company is thinking about adding a stock option component to their fringe benefit package. They are considering the pros and cons of both ISOs and NQOs to compensate their key executives. In addition, they are looking into ESPPs to offer stock to their rank-and-file workers. A “typical” employee will receive 1,000 options & the ESPPs options will be set at $8.50. The options must be exercised within two years. They expect that the “typical” rank- and-file employee will exercise the options just before they expire and they will sell the stock five years later. Both the company’s and the employee’s discount rates are 10%. The Horgan Company is in the 35% tax bracket. Their “typical” key executive is in the 33% ordinary income tax bracket while their “typical” rank-and-file worker is in the 25% tax bracket. Here is a time line indicating the projected stock price at the end of each year.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

Page1 / 3

ESPP_solution - Topic: Employee stock purchase plans...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online