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.

Required:

f$.$ What is the present value of each employee's after$-$tax cash flows from year $1$ through year $5$ if the

employees recelve NQOs? PV of each exployee's after$-$tax cash flows? $$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_$ Use Exhibit $3\mathrm{.}1.$

Note: Round your Intermedlate calculations and final answer to $2$ decimal places.

g$.$ How many NQOs would Harmer have to grant to keep its employees Indifferent between NQOs and $20$ ISOs? Number of NQOs?$\_\_\_\_\_\_\_\_\_\_\_\_\_\_$

Note: Do not round Intermedlate calculations. Round up your final answer to the next whole number.