WIlson Inc. developed a business strategy that uses stock options as a major com
ID: 2568217 • Letter: W
Question
WIlson Inc. developed a business strategy that uses stock options as a major compensation Incentive for its top executives. On January 1, 2016, 25 million options were granted, each glving the executlve owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date-$11 per share. Options vest on January 1, 2020. They cannot be exercised before that date and wll explre on December 31, 2022. The fair value of the 25 million options, estlmated by an appropriate option pricing model, Is $49 per option. Ignore Income tax. Wilson's compensation expense in 2016 for these stock options was: (Round your answer to nearest whole dollar amount.) $306 million. O so. O $612 million. O $1.225 million.Explanation / Answer
1. Fair value of options granted will be amortised over the vesting period: Jan1, 2016 to Dec31, 2019 which is 4 years
Fair value of options on grant date= 25M* 49= 1225M
Compensation expense in year1= 1225M/4= 306.25M
Option 1 is correct
2. weighted average number of shares:
3. Fair value of options granted= 13.5M*6= 81M
Service period= 2years
Year1 expense= 81M/2= 40.5Million
Shares outstanding before stock dividend=A Shares outstanding after stock dividend( B=A*1.12) Outstanding for-Months(C ) Weighted shares B*C/12 Opening 2700000 3024000 12 3024000 Additional share issue 6/30 170000 190400 6 95200 Additional share issue 9/30 170000 190400 3 47600 Total shares used in basic EPS calculation 3166800Related Questions
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