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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 $$3,300$ 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$).$

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?

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

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