General Rite’s stock was selling for $30 per share. At that point in time, Lucy was granted 1000 non-qualified stock options at $30 per share, with the stipulation that the shares could be exercised anytime over the following five years. (For purposes of the problem assume that the ordinary income tax rate and short-term capital gain rate is 28% and the long-term capital gain rate is 15%. Show your calculations in order to receive partial credit.)
1. Three years after receiving the stock, the market price was $60. What will be the result for tax purposes, if Lucy exercises the options at that time by purchasing the shares for $30,000?
2. Two years after exercising the stock, it rose to a market price of $100 per share. What will the resulting tax implication be at time of sale?