Under its executive stock option plan, National Corporation granted 30 million options on January 1, 2021,...

Under its executive stock option plan, National Corporation granted 30 million options on January 1, 2021, that permit executives to purchase 30 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, $27 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. Suppose that unexpected turnover during 2022 caused the forfeiture of 5% of the stock options. Compute the amount of compensation expense for 2022 and 2023. (Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50)

Expert Solution

Solution:

Compensation Expensesa are recorded at fair value.

Year 2021 - Compensation Expense	$' in Million
Expense at end of Year 2021 (30 Million Options * Fair Value $4 * 1/6)	20.00

Year 2022 - Compensation Expense	$' in Million
Cumulative Expense at end of Year 2022 (30 Million Options * Fair Value $4 * 2/6 * 95% )	38.00
Less: Previously Recorded Expense in 2021	20.00
Year 2022 Compensation Expense	18.00

Year 2023 - Compensation Expense	$' in Million
Cumulative Expense at end of Year 2022 (30 Million Options * Fair Value $4 * 3/6 * 95% )	57.00
Less: Previously Recorded Expenses (20 + 18)	38.00
Year 2023 Compensation Expense	19.00

95% taken from Year 2022 because 5% options are forfeited.

Hence,

Year 2022 Compensation Expense = $18.00 millions

Year 2023 Compensation Expense = $19.00 millions

Hope the above calculations, working and explanations are clear to you and help you to understand the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago

Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2021,...

Under its executive stock option plan, National Corporation granted 20 million options on January 1, 2021, that permit executives to purchase 20 million of the company’s $1 par common shares within the next seven 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, $24 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option. Suppose...

Under its executive stock option plan, M Corporation granted options on January 1, 2018, that permit...

Under its executive stock option plan, M Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were...

Under its executive stock option plan, Q Corporation granted options on January 1, 2018, that permit...

Under its executive stock option plan, Q Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures were...

part a Under its executive stock option plan, N Corporation granted options on January 1, 2018,...

part a Under its executive stock option plan, N Corporation granted options on January 1, 2018, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2020 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No...

Under its executive stock option plan, Worcester Corporation granted options on January 1,2018, that permit executives...

Under its executive stock option plan, Worcester Corporation granted options on January 1,2018, that permit executives to purchase 20 million of the company's $1 par common shares within the next eight years, but before December 31,2020 ( the vesting date). the exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No forfeitures are anticipated. The...

On January 1, 2020, Sandhill Corp. granted stock options to its chief executive officer. This is...

On January 1, 2020, Sandhill Corp. granted stock options to its chief executive officer. This is the only stock option plan that Sandhill offers and the details are as follows: Option to purchase: 2,400 common shares Option price per share: $37.00 Fair value per common share on date of grant: $29.30 Stock option expiration: The earlier of eight years after issuance or the employee’s cessation of employment with Sandhill for any reason other than retirement Date when options are first...

On January 2, 2015, Ryan Company adopted a stock-option plan that granted options to key executives...

On January 2, 2015, Ryan Company adopted a stock-option plan that granted options to key executives to purchase 20,000 shares of the company's $5 par value common stock. The options were granted on January 2, 2015, and were exerciseable two years after the date of grant if the grantee was still an employee of the company. The option exercise price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $400,000. What is...

On November 1, 2020, Carla Company adopted a stock-option plan that granted options to key executives...

On November 1, 2020, Carla Company adopted a stock-option plan that granted options to key executives to purchase 33,900 shares of the company’s $9 par value common stock. The options were granted on January 2, 2021, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the...

On November 1, 2017, Whispering Company adopted a stock-option plan that granted options to key executives...

On November 1, 2017, Whispering Company adopted a stock-option plan that granted options to key executives to purchase 27,300 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the...

On November 1, 2017, Concord Company adopted a stock-option plan that granted options to key executives...

On November 1, 2017, Concord Company adopted a stock-option plan that granted options to key executives to purchase 39,000 shares of the company’s $9 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the...

Question