Required information

Comprehensive Problem $12-50($LO $12-1,$ LO $12-2,$ LO $12-3)($Algo$)$

$[$The following information applies to the questions displayed below.$]$

Pratt is ready to graduate and leave College Park. His future employer $($Ferndale Corporation$)$ offers the

following four compensation packages from which Pratt may choose. Pratt will start working for Ferndale on

January $1,$ year $1.$

Assume that the restricted stock is $1,000$ shares that trade at $$5$ per share on the grant date $($January $1,$ year $1)$;

shares are expected to be worth $$10$ per share on the vesting date at the end of year $1$; and no $83($b$)$ election

is made. Assume that the NQOs $(100$ options$)$ each allows the employee to purchase $10$ shares at $$5$ exercise

price. The stock trades at $$5$ per share on the grant date $($January $1,$ year $1)$ and is expected to be worth $$10$

per share on the vesting date at the end of year $1,$ and the options are exercised and sold at the end of the

year. Also assume that Pratt spends on average $$3,060$ on health$-$related costs that will be covered by

insurance if he had coverage or is an after$-$tax expense if he isn't covered by insurance $($treat this as a cash

outflow$).$ Assume that Pratt's marginal tax rate is $35$ percent. $($Ignore FICA taxes and time value of money

considerations$).$

Comprehensive Problem $12-50$ Parts a and b $($Algo$)$

Required:

a$.$ What is the after$-$tax value of each compensation package for year $1?$

b$.$ If Pratt's sole consideration is maximizing after$-$tax value for year $1,$ which scheme should he select?

Complete this question by entering your answers in the tabs below.

Required $A$

What is the after$-$tax value of each compensation package for year $1?$

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

Complete this question by entering your answers in the tabs below.