Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2018, 20 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date-$10 per share. Options vest on January 1, 2022. They cannot be exercised before that date and will expire on December 31, 2024. The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option. Ignore income tax.
- Wilson's compensation expense in 2018 for these stock options was:
A) $0.
B) $200 million.
C) $400 million.
D) $800 million.

Question

Quizplus · Accepted Answer

The computation is as follows:
Estimated value of the options at January 1, 2018: 11ea937b_3596_631b_a419_59bd586d9da6_TB2599_00 Compensation fair value is spread over the four-year vesting period at $200 million/year.