Question

Martin Corp. permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchased at a 20% discount. During 2021, employees purchased 19 million shares; during this same period, the shares had a market price of $15 per share at the end of the year. Martin's 2021 pretax earnings will be reduced by:

Answer 1

Answer: $57,000,000

Explanation:

The employees purchased at a 20% discount which means that this 20% discount is the amount that would have to be covered by the company's pretax earnings:

= 19,000,000 * 15 * 0.2

= $57,000,000

Martin's pretax earnings will be reduced by $57 million because the company would have to cover the discount on the shares.