Question

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2018, 22 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date – $30 per share ($120 per option). Options vest on January 1, 2022. They cannot be exercised before that date and will expire on December 31, 2024. The fair value of the 22 million options, estimated by an appropriate option pricing model, is $47 per option. Ignore income tax. Wilson's compensation expense in 2018 for these stock options was:

Answer 1

Wilson's compensation expense in 2018 for these stock options was $258.50 millions

Step-by-step explanation:

Compensation Expense in 2018 Stock Option =Estimated value of Option at Jan 1, 2013 = 26 Million X $47 = $1222 Million

Estimated value of Option at Jan 1, 2018=22 Million X $47

Estimated value of Option at Jan 1, 2018=$1,034 million

Options vest on January 1, 2022, therefore, Fair value is spread over 4 Years of vesting period= $1,034 million/4

Fair value is spread over 4 Years of vesting period=$258.50 millions

Wilson's compensation expense in 2018 for these stock options was $258.50 millions