Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Bri

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Connect CSecure https//newconnect.mheducation.com/flow/connect.html Ch. 19 - Brief Exercises (80 minutes) Help Save & Exlt Submlt Saved 3 Check my work 4 Brief Exercise 19-4 Stock options; forfeiture [L019-2] 6.25 points Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2018, that permit executives to purchase 20 million of the company's $1 par common shares within the next six years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $24 per share. The fair value of the options, Skippedestimated by an appropriate option pricing model, is $3 per option. Suppose that unexpected turnover during 2019 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2019 and 2020. (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50)) eBook References Compensation expense $ in millions) 2019 2020 Mc Graw Hill ?Prey 40r 16? Next> ^??4, 4/17/2018 8-32 PM |

Explanation / Answer

Total compensation expense = Number of stock options x Fair value per option = 20 million x $3 = 60 million

Compensation expense for 2019

= (Total compensation expense - Value of forfeited stock options) x 1/4

= [20 million - (20 million x 5%)] x 1/4

= 4.75 million

Compensation expense for 2020

= (Total compensation expense - Value of forfeited stock options) x 1/4

= [20 million - (20 million x 5%)] x 1/4

= 4.75 million

Therefore,

Compensation expense for 2019 = 4.75 million

Compensation expense for 2020 = 4.75 million

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