Question

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, 2021. The options permit holders to acquire 5 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 grant is $29 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 25%.

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

Answer 1

$ 30, 000, 000

Step-by-step explanation:

Stock Options are options allocated to the employee to purchase a definite number of shares of stock of the company at a agreed price during a definite period of time

The total compensation of the aircraft can be calculated as follows:

The total compensation cost pertaining to the incentive stock option can be determined by the fair market value per stock option and the number of options granted :

Total compensation of stock options = Estimated fair market value of the option × Number of points generated

Total compensation of stock options = $6 × 5, 000, 000 shares

= $ 30, 000, 000

Answer 2

The total compensation cost pertaining to the incentive stock option plan will be $30,000,000

Step-by-step explanation:

In order to calculate the total compensation cost pertaining to the incentive stock option plan we would have to use the followinf formula:

Total compensation cost of stock options=Estimated fair market value of the option×Number of options granted

Total compensation cost of stock options=$6×5,000,000 shares

Total compensation cost of stock options=$30,000,000

The total compensation cost pertaining to the incentive stock option plan will be $30,000,000