henderson industries inc stock is currently selling at 22.40 per share. sharon j

Question

henderson industries inc stock is currently selling at 22.40 per share. sharon jacob, the ceo has options to buy 250,000 shares at 25.50 per share that expire at the end of this year. sharon feels that if the traditional accounting method is used, implementing the deferred payment sales program will push the stocks price about halfway toward the level it was at two years ago which was about 43.00 (the method recognizes the entire price and cost of a solid item on the income statement at the time of sale). if the installment sales technique is used the price of the stock will probably be unchanged but may even go down a little.

if sharon jacobs is also the founder of the company and has retanined 8 million shares of its stock how mutch of a difference will the auditor,s decision make her personal welth outside of the stock option?

Explanation / Answer

Half way to the former price is
($43.00 - $22.40) / 2 = $20.60 / 2 = $10.30
Likely price with program
$22.40 + $10.30 = $32.70
Per share gain on stock options
$32.70 - $25.50 = $7.20
Total gain
$7.20 x 250,000 = $1.8 million

if sharon jacobs is also the founder of the company and has retanined 8 million shares of its stock how mutch of a difference will the auditor,s decision make her personal welth outside of the stock option?

The decision involves a price change of $10.30 which will apply to all of Sharon’s shares so it will impact her wealth by

 

                                    8 million x $10.30 = $82.4 million.

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