Harmer Incorporated is now a successful company. In the early days $($before it became profitable$),$ it issued ISOs to its employees. Now Harmer is trying to decide whether to issue NQOs or ISOs to its employees. Initially, Harmer would like to give each employee $20$ options $($each option allows the employee to acquire one share of Harmer stock$).$ For purposes of this problem, assume that the options are exercised in three years $($three years from now$)$ and that the underlying stock is sold in five years $($five years from now$).$ Assume that taxes are paid at the same time the income generating the tax is recognized. Also assume the following facts:

The after$-$tax discount rate for both Harmer Incorporated and its employees is $10$ percent.

The corporate tax rate is $21$ percent.

The personal $($employee$)$ ordinary income tax rate is $37$ percent.

The personal $($employee$)$ long$-$term capital gains rate is $20$ percent.

The exercise price of the options is $$7.$

The market price of Harmer at date of grant is $$5.$

The market price of Harmer at date of exercise is $$25.$

The market price of Harmer at date of sale is $$35.$

Answer the following questions:

Note: Leave no answer blank. Enter zero if applicable.

Problem $12-32$ Part f $($Static$)$

f$.$ What is the present value of each employee's after$-$tax cash flows from year $1$ through year $5$ if the employees receive NQOs? Use Exhibit $3\mathrm{.}1.$