I need a step by step solution. ASAP At the beginning of its first year of opera

ID: 2600171 • Letter: I

Question

I need a step by step solution. ASAP

At the beginning of its first year of operations, the Barker Co. grants non qualified options on 5,000 of its $1 par common stock. The exercise price of each option is $30. The fair market value of each option on the grant date is $6 and the options vest after 4 years. The fair market value of each common share on the grant date is $29. The tax rate is 20% in all years.

1. How much is the book value of common stock issued if all the options are exercised when the fair market value of each common share is $40 ?

Answers, $5,000: $200,000, $55,000, $195,000 and all other regarding this question on chegg are WRONG.

Explanation / Answer

1st yr

5000+((((((5000*.20)*.20)*.20)*.20)*.2)0*0)/4

5000

2nd yr

5000+((((((5000*.20)*.20)*.20)*.20)*.2)*1)/4

5200

5200-5000=200

200

200*5000

2000000

3rd yr

5000+((((5000*.20)*.20)*.20)*2)/4

5020

5020-5000=20

20*5000

55000

4th yr

5000+(((5000*.20)*.20)*3)/4

5150

5150-5000=150

150*5000

750000