Question

Taxon Corp. granted restricted stock units (RSUs) representing 30 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $8 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives?
0.

$30 million.

$80 million.

$240 million.

Answer 1

Answer:

The effect on earnings in the year after after the shares are granted to executives wpuld be that the earnings will be reduced by $80 million.

Explanation:

market price of common shares = $8 per share

number of common shares issued as RSUs = 30 million

total value of common shares issued as RSUs = 30 million*$8

                                                                              = $240 million

the total compensation to executives is $240 million and the vesting period is 3 years.

Therefore, the total compensation should be expensed over a period of 3 years, this will reduce the earnings of the company by $80 million ($240 million/3) per year for 3 years.

Therefore, The effect on earnings in the year after after the shares are granted to executives wpuld be that the earnings will be reduced by $80 million.