JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based...

JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2018. The options permit holders to acquire 5 million of the company's $1 par common shares for $31 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $35 per share. The fair value of the 5 million options, estimated by an appropriate option pricing model, is $6 per option. Because the plan does not qualify as an incentive plan, JBL will receive a tax deduction upon exercise of the options equal to the excess of the market price at exercise over the exercise price. The tax rate is 40%.

Determine the total compensation cost pertaining to the incentive stock option plan.

Solutions

Expert Solution

Determination of total compensation cost

Total compensation cost pertaining to the incentive stock option plan
                                                      = Estimated Fair value of option x Options Granted
                                                      = $6 per option x   5 million
                                                      = $30 million or $30,000,000

Total compensation cost = $30 million or $30,000,000

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based...

q. 27 JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety...

q. 27 JBL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2018. The options permit holders to acquire 6.5 million of the company's $1 par common shares for $22 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $26...

BL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based...

BL Aircraft manufactures and distributes aircraft parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, JBL granted options to key officers on January 1, 2018. The options permit holders to acquire 9 million of the company's $1 par common shares for $38 within the next six years, but not before January 1, 2021 (the vesting date). The market price of the shares on the date of grant is $42 per share....

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based...

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 21 million of the company’s $1 par common shares for $14 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $16 per share....

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based...

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 9 million of the company’s $1 par common shares for $25 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of the grant is $27 per...

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based...

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 12 million of the company’s $1 par common shares for $11 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $13 per share....

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based...

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 23 million of the company’s $1 par common shares for $12 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $14 per share....

Air Travel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The...

Air Travel Inc. manufactures a wide variety of parts for commercial aircraft, including airplane engines. The component is purchased by OEM (Original Equipment Manufacturers) such as Boeing, for use in the larger and more powerful outboards. The units sell for $10,000, and sales volume averages 2,000 units per year. Recently, Air Travel’s major competitor lowered the price of the equivalent part of $9,500. The market was very competitive, and AirTravel realized it had to meet the new price or lose...

Exercise 19-9 (Algo) Stock options; exercise [LO19-2] SSG Cycles manufactures and distributes motorcycle parts and supplies....

Exercise 19-9 (Algo) Stock options; exercise [LO19-2] SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 23 million of the company’s $1 par common shares for $12 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the...

Heidi Software Corporation provides a variety of share-based compensation plans to its employees. Under its executive...

Heidi Software Corporation provides a variety of share-based compensation plans to its employees. Under its executive stock option plan, the company granted options on January 1, 2021, that permit executives to acquire 11 million of the company’s $1 par common shares within the next five years, but not before December 31, 2022 (the vesting date). The exercise price is the market price of the shares on the date of grant, $52.00 per share. The fair value of the 11 million...

Subjects