Question

Under its executive stock option plan, W 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 are anticipated. The options are exercised on April 2, 2021, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised? Group of answer choices $315 million. $60 million. $270 million. $330 million.

Answer 1

$315 million

Step-by-step explanation:

Calculation to determine what amount will W's shareholder's equity be increased when the options are exercised

(millions)

Cash $270

($18 exercise price x 15 million shares)

Paid-in capital – stock options (account balance)$60

(4*$15million shares)

Less Common stock $15

(15 million shares at $1 par per share)

Paid-in capital—excess of par (remainder)$315

Therefore The amount that W's shareholder's equity will be increased when the options are exercised is $315 million