Question

On January 1, 2023, Sunland Corporation granted 18,300 options to key executives. Each option allows the executive to purchase one share of Sunland's common shares at a price of $20 per share. The options were exercisable within a two-year period beginning January 1, 2025, if the grantee was still employed by the company at the time of the exercise. On the grant date, Sunland's shares were trading at $16 per share, and a fair value options pricing model determined total compensation to be $790,000. Management has assumed that there will be no forfeitures because they do not expect any of the key executives to leave. On May 1, 2025, 7,320 options were exercised when the market price of Sunland's shares was $28 per share. The remaining options lapsed in 2026 because executives decided not to exercise them. Management was indeed correct in their assumption regarding forfeitures in that all executives remained with the company. Assume that Sunland follows IFRS. Prepare the necessary journal entries related to the stock option plan for the years ended December 31, 2023 through 2026.

Answer 1

The price per share of Babble, Inc. is calculated by first determining the present value of future profits at a 15% interest rate and then dividing by the number of shares, which results in approximately $256,500 per share.

Step-by-step explanation:

To determine the price an investor would pay for a share of stock in Babble, Inc., we have to calculate the present value (PV) of future profits and then divide by the number of shares. Assuming an interest rate of 15%, the present value of profits received at different times needs to be summed up to find the total present value (TPV).

Once we have the TPV, we divide it by the number of shares (200 shares) to find the price per share. In this hypothetical scenario, Babble, Inc. has expected profits that will be paid out as dividends: $15 million immediately, $20 million in one year, and $25 million in two years. The present value of these profits is calculated and summed to find the TPV. Dividing the TPV by the number of shares indicates that the price per share would be about $256,500 per share.