What is a nonqualified stock option, how and why is it used to compensate executive management?

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  1. You are to write a 2 page paper following APA rules for the title page, citations and appropriate references within the body of the paper. The minimum number of content pages is 2 and the maximum is 4 for the two issues noted in “a” and “b” below.
  2. Locate the following research article using the OCLS and EBSCOhost referenced below: 

Graham, J. R., Lang, M. H., & Shackelford, D. A. (2004). Employee Stock Options, Corporate Taxes, and Debt Policy. Journal of Finance, 59(4), 1585-1618. doi:10.1111/j.1540-6261.2004.00673.x

  1. Your paper is to address the following:
    1. What is a nonqualified stock option, how and why is it used to compensate executive management? You may use other sources, however, you must reference and cite them. Also, remember to reference and cite the textbook.
    2. The author’s research indicates that by using stock options, corporations that trade on NASDAQ can reduce their estimated median marginal tax rate from 31% to 5%. Using information from the article, explain how these corporations use stock options to reduce their marginal tax rates.
  2. In a page following your reference page, use the Accounting Standards Codification to locate the section which discusses accounting principles relevant to stock compensation. Next access the overview and background subsection. Copy subsection 05-3 and paste to the page. Also, properly cite this code section.
  3. Go towww.irs.govand search for Publication 525. Use the Index located at the back of the publication to find the section on “stock options, nonstatutory.” Next, select the “exercise or transfer” of option. Copy the section titled “Transfer in Arm’s Length Transaction” to the page. Include a citation of the source.

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