First Link Services granted 4.2 million of its $1 par common shares to executive

Question

First Link Services granted 4.2 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $10 per share on the grant date of the restricted stock award.

Ignoring taxes, what is the total compensation cost pertaining to the restricted shares? (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives? (Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).)

First Link Services granted 4.2 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $10 per share on the grant date of the restricted stock award.

Explanation / Answer

1.

Total compensation cost pertaining to the restricted shares:

total compensation cost pertaining to the restricted shares = fair value of share * shares granted

= $10 * 4.2 million

= 42 million

2.

Effect on earnings in the year after the shares are granted to executives:

effect on earnings in the year after the shares are granted to executives

= (fair value of share * shares granted) / no. of years

= ($10 * 4.2 million) / 4

= 10.5 million

effect on earnings in the year after the shares are granted to executives decreased by 10.5 million

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