FX Services granted 17.5 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within two years. The common shares have a market price of $7 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

Question

Business

Aylin Zavala

20 August, 12:32

FX Services granted 17.5 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within two years. The common shares have a market price of $7 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?

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Answers (1)

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Rylee Dickson · Answer 1

The options are given below:

A. $17.5 million.

B. $61.25 million.

C. $122.5 million.

D. $0 million.

The correct option is B. $61.25 million.

Explanation:

From the question above, we have the following:

Number of common shares granted = 17.5 million

Price par common share = $1

Market price of common shares = $7

We calculate the effect on earnings in the year after the shares are granted to executives as follows:

$7 X 17.5 million

=> 122,500,000

Now, we divide this by the number of years that the common share is subject to forfeiture if employment is terminated:

=> 122,500,000/2

=> $61,250,000