The 2015 NPV of the cash flows from the exercise and sale of the nonqualified stock option is $63,296.81.
The initial cost of acquiring the 225 shares in 2015:
= 225 shares * $100/share = $22,500
The proceeds from selling the 225 shares in 2022:
= 225 shares * $480/share = $108,000
Capital Gains = Proceeds - Initial cost
= $108,000 - $22,500
= $85,500
Capital Gains Tax = Capital Gains * Capital Gains Rate
= $85,500 * 0.15
= $12,825
The net cash flows from the sale:
= Proceeds - Capital Gains Tax
= $108,000 - $12,825
= $95,175
NPV = Net Cash Flows / (1 + Discount Rate)^Number of Years
= $95,175 / (1 + 0.06)^7
= $95,175 / 1.50363025899
= 63296.8107891
= $63,296.81.
The full question is:
In 2015 (year 0), Jessee exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at date of exercise was $312 per share. In 2022, Jessee sold the 225 shares for $480 per share. Assuming that Jessee is in the 35 percent tax bracket, has a 15 percent capital gains rate, and uses a 6 percent discount rate, compute the 2015NPV of the cash flows from the exercise and sale if the stock option was nonqualified