Mr. Hot Dog, in charge of the Oscar Mayer division of Kraft…
Mr. Hot Dog, in charge of the Oscar Mayer division of Kraft Foods, received KHC incentive stock options (ISOs) two years ago with an exercise price of $30 a share, the value of the stock at the date of the grant. Mr. Hot Dog exercised these options when KHC hit a 52 week high of $44/share on May 21st of this year. KHC’s performance has since reverted and the stock is now trading at $36 per share. Mr. Hot Dog is considering diversifying his risk against any future losses and wants to buy NATH, Nathan’s Famous, as this stock has outperformed. Which of the following are true regarding Mr. Hot Dog’s stock options? If he sells his KHC options today, he will have a short term capital gain of $6 a share. If he sells his KHC options 9 months from now at its current trading price, he will have long term capital gains of $6 a share. If he sells his KHC options 9 months from now at its current trading price, he will have a negative AMT adjustment of $14 a share next year. If he sells his KHC options today, Kraft Foods Inc will not have a deductible expense related to the ISOs.
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