Return to question 2 Under its executive stock option plan, National Corporation

Question

Return to question 2 Under its executive stock option plan, National Corporation granted 30 million options on January 1, 2018, that permit executives to purchase 30 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, $27 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that unexpected turnover during 2019 caused the forfeiture of 5% of the stock options. 4.28 points Compute the amount of compensation expense for 2019 and 2020, (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50)) Answer is complete but not entirely correct Compensation expense ($ in millions) 36.00 32.40 2019 2020

Explanation / Answer

Compensation Expense for 2020 is 38

Fair value of the option 4 Granted shares - in millions 30 Fair value of the awarded option 120 Per year(120/3) 40 95% of fair value of the compensation 114 2/3 of 114 76 Less previous year deduction 40 Compensation Expense -2019 36 Compensation Expense-2020 (114/3*3)-40-36 38

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