Five years ago Roger was granted 5,000 incentive stock options and 3,500 nonqualified stock options. At that time the stock price was $20 per share.

The ISO exercise price was $20 per share and the NSO exercise price was $2 per share.

The value of the nonqualified options at the time of the grant was $18 per share. All of the ISOs and NSOs were exercised on the same day in the third year after the grant when the stock price was $42 per share. All of the option stock was then sold 14 months later for $65 per share.

1. Will any part of the above transactions be taxed as ordinary income? If so, which?
2. When Roger sold the stock, how were the proceeds taxed?
3. Is the employer entitled to deduct any part of the above transactions? If so, which part(s) result in a deduction? How much is deductible?
4. Calculate the amount of income from the grant to Roger.