Question

Taxon Corp. granted restricted stock units (RSUs) representing 50 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within five 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 $10 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:

$100

Explanation:

Market price of common shares = $10 per share

Number of common shares granted by RSUs = 50 million

Total market value of common stock issued = Number of Common shares granted by RSUs × Market price of common shares

Total Market value of common stock issued = 50 million × $10 = $500

Vesting Period = 5 years

The effect on earnings in the year after the shares are granted to executives = Total market value of common stock issued / Vesting Period

The effect on earnings in the year after the shares are granted to executives = $500 / 5 years

The effect on earnings in the year after the shares are granted to executives = $100

Answer 2

Answer:

$ 100,000,000

Explanation:

The firm grant potential for 50 million shares with a market price of $10

The par value is disregard from calculation as the firm will issue at market value to avoid dilution.

This represent 500 millions. As the firm has a vesting period of 5 years it will accue over time this amount instead of directly reduced when the stock are excerise:

500 million / 5 years = 100 million per year