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The senior executives have asked you to analyze the various alternatives and provide a recommendation to the

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Screen Shot 2019-10-14 at 1.10.19 AM.png

Problem 4
ITA: 5,6
Three senior executives are renewing their employment contracts with Global Consulting Ltd., a
public corporation. The corporation has provided each of them with the following alternative compensa-
tion plans for 2014 in addition to the $145,000 base salary each receives:
(a) A cash raise of $5,000 in 2014.
(b) A bonus of $5,500 payable in 2015.
(c) Use of the company condominium in Hawaii for two weeks, valued at $3,000.
(d) A stock option arrangement to purchase 1,000 shares of Global Consulting, a public company,
this month (December 2013). Today's fair market value of the shares is $5, and the option price
Ch. 3/Employment Income
would be $3.50 per share. Management anticipates the share price in December 2014 will be
Assume a marginal tax rate of 45%.
Discuss the various alternatives and provide a recommendation to the senior executives.

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