Under its executive stock option plan, National Corporation granted options on J
ID: 2565069 • Letter: U
Question
Under its executive stock option plan, National Corporation granted options on January 1, 2016, that permit executives to purchase 18 million of the company's $1 par common shares within the next six years, but not before December 31, 2018 (the vesting date). The exercise price is the market price of the shares on the date of grant, $15 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 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).) otal 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 millionExplanation / Answer
Total Compensation pertaining to Stock Option
No of Stock options granted - $ 18 Million
Fair Value of Stock Option - $ 2 per option
Total Compensation - $ 36 Million
Effect on earnings in the year in the year after the options are granted to executives :
Earnings will affect to that extent fair value of Stock Options ie., $ 36 Millions.
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