Under its executive stock option plan, National Corporation granted options on J

Question

Under its executive stock option plan, National Corporation granted options on January 1, 2016, that permit executives to purchase 29 million of the company's $1 par common shares within the next eight 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, $33 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No forfeitures are anticipated. 1. Ignoring taxes, what is the total compensation cost pertaining to the stock options? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Total compensation cost million 2. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives? (Enter your answer in millions (i.e., 10,000,000 should be entered as 10).) Effect on earnings million

Explanation / Answer

1) Total compensation cost = 29*$5 = $145 million

2) Effect on earnings = $29 million

= (29*$5)/ 5years = $29 million

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