Under its executive stock option plan, National Corporation granted 15 million options on January 1, 2021, that permit executives to purchase 15 million of the company's $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $17 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 pertaining to the stock options? 2. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives? 1. 2. Answer is complete but not entirely correct. Total compensation cost Effect on earnings decreased by $ S 60 10 million million
Under its executive stock option plan, National Corporation granted 15 million options on January 1, 2021, that permit executives to purchase 15 million of the company's $1 par common shares within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $17 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 pertaining to the stock options? 2. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives? 1. 2. Answer is complete but not entirely correct. Total compensation cost Effect on earnings decreased by $ S 60 10 million million
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Under its executive stock option plan, National Corporation granted 15 million options on January 1, 2021, that permit executives to purchase 15 million of the company's $1 par common shares
within the next six years, but not before December 31, 2023 (the vesting date). The exercise price is the market price of the shares on the date of grant, $17 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 pertaining to the stock options?
2. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives?
1.
2.
Answer is complete but not entirely correct.
Total compensation cost
Effect on earnings
decreased by
S
s
60✔ million
10 million
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