On January 1, 2021, EG Corporation granted 22 million options under its executive stock option plan that permit executives to purchase 22 million of the company’s $1 par common shares within the next seven years, but not before December 31, 2024 (the vesting date). The exercise price is the market price of the shares on the date of grant, $26 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. 1. Ignoring taxes, what is the total compensation cost EG Corporation will recognize as a result of the stock options? 2. Ignoring taxes, what is the effect on EG's earnings in the year after the options are granted to executives? total compensation effect on earnings decrease increase no effect
On January 1, 2021, EG Corporation granted 22 million options under its executive stock option plan that permit executives to purchase 22 million of the company’s $1 par common shares within the next seven years, but not before December 31, 2024 (the vesting date). The exercise price is the market price of the shares on the date of grant, $26 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated.
1. Ignoring taxes, what is the total compensation cost EG Corporation will recognize as a result of the stock options?
2. Ignoring taxes, what is the effect on EG's earnings in the year after the options are granted to executives?
total compensation
effect on earnings
decrease
increase
no effect
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
