Under its executive stock option plan, N Corporation granted options on January

Question

Under its executive stock option plan, N Corporation granted options on January 1, 2016, that permit executives to purchase 16.0 million of the company's $1 par common shares within the next eight years, but not before December 31, 2018 (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 $3 per option. No forfeitures are anticipated. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives

Explanation / Answer

The effect of stocks is visible in the balance sheet on the expense side. The exenses is calculated based on the fiar value of the option. So the effect on expenses in the year after the options are granted to exectives = 16m * 3m = $ 48m

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