Please use the following assumptions and the relevant case study material.

Your deliverable: Make Four PowerPoint slides to 1) Explain the fundamentals of ISO vs. NQSO and 2) Show the results of the two alternatives. Bring a hard copy printout to class.

Assumptions. Use the following assumptions in addressing the issues in the Executive Compensation Analysis:

The options (either ISOs or NQSOs) are granted on January 1, 2015.

None of the options are publicly-traded or transferable.

Stevies intent is that the options will be fully vested when issued and not subject to a substantial risk of forfeiture.

The options are required to be exercised on or before December 31, 2017.

The options are actually exercised on December 31, 2015, when the stock is trading for $50 per share.

Alternative 1. The stock acquired when the options are exercised is sold on December 31, 2018, at $80 per share.

Alternative 2. The stock acquired when the options are exercised is sold on December 10, 2016, at $60 per share.

Disregard trading commissions that might apply upon exercise of the options or later sale of the stock.

Each employee will continue to work for TuFFLabs through the exercise date.

Questions to consider for the Executive Compensation Analysis.

Nonqualified stock options (NQSO). o What is a nonqualified stock option?

o What requirements must TuFFPeach meet in order to issue NQSOs?

o In Stevies hypothetical situation, for regular tax purposes, how would an employee be taxed on NQSOs? Consider the grant date, exercise date and sale date. Also, address Alternatives 1 and 2 (see Assumptions above). Show your calculations.

o May TuFFPeach claim a deduction related to these NQSOs? If so, how is the amount determined and when is it deductible?

Incentive stock options (ISOs).

o What is an incentive stock option (ISO)?

o What requirements must TuFFPeach meet in order to issue ISOs?

o In Stevies hypothetical situation, for regular tax purposes, how would an employee be taxed on ISOs? Consider the grant date, exercise date and sale date. Also, address Alternatives 1 and 2 (see Assumptions above). Show your calculations.

o May TuFFPeach claim a deduction related to ISOs? If so, how is the amount determined and when is it deductible?