Question
Background Information for this question On December 31, 2016, Richard and Erlich formed a corporation named Pied Piper Inc. (or PP). On December 31, 2016,
Background Information for this question On December 31, 2016, Richard and Erlich formed a corporation named Pied Piper Inc. (or "PP"). On December 31, 2016, PP issued 800,000 shares of common stock to Erlich and 800,000 shares of common stock to Richard. Erlich and Richard each paid $0.001 per share for their stock ($0.001 equaled the per share fair market value on December 31, 2016). Their stock is subject to a 4-year "repurchase option" (at the cost each shareholder paid for the stock) in favor of PP. Each PP repurchase option will "lapse" over time so that on December 31 (of 2017, 2018, 2019 and 2020), 200,000 shares are released from the repurchase option. For example, if Erlich quits PP before December 31, 2020, PP can repurchase Erlich's "unvested shares" for $0.001 per share (no matter what the fair market value is on that date). Despite PP's success, assume that Erlich "resigned" from PP on January 1, 2018. On January 1, 2018, PP's common stock had a fair market value of $1.00 per share (and 600,000 of Erlich's shares will still be subject to PP's repurchase option).
What is the fair market value of the shares PP will acquire when PP exercises the repurchase option to the maximum extent possible?
$600,000 (i.e., $1.00 a share for 600,000 shares) | ||
$200,000 (i.e., $1.00 a share for 200,000 shares) | ||
$600 (i.e., $0.001 a share for 600,000 shares) | ||
$200 (i.e., $0.001 a share for 200,000 shares) |
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