Question

Taxon Corp. granted restricted stock units (RSUs) representing 52 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four 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 $11 per share on the grant date. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives

Answer 1

Answer:

$143 million

Explanation:

Taxon Corp

$ 11 fair value per share x $52 million shares represented by RSUs shares granted

=$572 million fair value of shares represented by RSUs.

Hence;

$572 million/4 years

=$143 million

The $572 million total compensation is expensed equally over the four-years vesting period, which in turn reduce the earnings by $143 million each year.

Therefore the effect on earnings in the year after the shares are granted to executives will be $143 million