Question

Under its executive stock option plan, W Corporation granted options on January 1, 2021, that permit executives to purchase 28 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, $19 per share. The fair value of the options, estimated by an appropriate option pricing model, is $5 per option. No forfeitures are anticipated. The options are exercised on April 2, 2024, when the market price is $22 per share. By what amount will W's shareholders equity be increased when the options are exercised

Answer 1

Answer:

$532 million

Explanation:

Number of common stock executives are permitted to purchase = 28 million

Exercise price = Market price of the shares on the date of grant = $19 per share

Amount of increase in W's shareholders equity = 28 million * $19 = $532 million

Therefore, W's shareholders equity will increase by $532 million when the options are exercised.