Question

Under its executive stock option plan, W Corporation granted options on January 1, 2021, 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, 2023 (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, 2024, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised

Answer 1

$270m

Step-by-step explanation:

We can calculate the amount that will increase W's shareholder's equity when the options are exercised as follows

Increase in equity = No Options Granted x Exercise price at the date of grant

Increase in equity = 15million x $18

Increase in equity = $270m