Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 23, Problem 4MC
Why do you suppose employee stock options usually have a vesting provision? Why must they be exercised shortly after you depart the company even after they vest?
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How is it possible for an employee stock option to be valuable even if the firm’s stock price fails to meet shareholders’ expectations?
Compensatory stock option plans are a common component of employee compensation packages, allowing employees to purchase company stock at a predetermined price.
The financial accounting for such plans involves various considerations. Let's examine a set of statements related to compensatory stock option plans and identify which
statement does not accurately reflect the financial accounting principles associated with these plans.
Question:
Which of the following statements regarding the financial accounting for compensatory stock option plans is not accurate?
Multiple Choice
A) Stock options' fair value is recognized as compensation expense over the vesting period.
B) The common stock issued upon the exercise of stock options is recorded at its fair market value.
C) Changes in the market value of stock options during the vesting period do not impact the recorded compensation expense.
D) The par value of common stock issued upon the conversion of options increases total owners' equity.
A stock option plan may or may not be intended to compensate employees for their work. The compensation expense for compensatory stock option plans should be recognized in the periods the a. employees become eligible to exercise the options. b. employees perform services. c. stock is issued. d. options are granted.
Chapter 23 Solutions
Corporate Finance
Ch. 23 - Employee Stock Options Why do companies issue...Ch. 23 - Real Options What are the two options that many...Ch. 23 - Project Analysis Why does a strict NPV calculation...Ch. 23 - Real Options Utility companies often face a...Ch. 23 - Prob. 5CQCh. 23 - Real Options Star Mining buys a gold mine, but the...Ch. 23 - Real Options You are discussing real options with...Ch. 23 - Real Options and Capital Budgeting Your company...Ch. 23 - Insurance as an Option Insurance, whether...Ch. 23 - Real Options How would the analysis of real...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 4. Why do companies give stock-based compensation (e.g. stock options) to employee? Please describe some examples of stock- based compensations.arrow_forwardWhich of the following is NOT a characteristic of a non-compensatory employee stock option plan (ESOP)? a. The plan requires the employee to pay an upfront premium. b. There is only a small discount from the market price. c. The plan is generally available to all employees. d. The plan is accounted for as compensation expense. Clear my choicearrow_forwardHow is treasury stock purchased? What ethical issues may arise from buying back company stock?arrow_forward
- a controller argues that when a company issues stock for less than current value, the value of preexinting stockholders shares is diluted. Is this allowed and right at employee compensation ?arrow_forwardCan a stockholder reclaim his/her appraisal rights if it has already been waivered due to late demand?arrow_forwardWhich of the following is NOT true? a. If the choice is cash, a liability has to be recorded until the SARS are exercised. b. Stock options will almost always have value, whereas restricted stock may not. C. An option-pricing model is not used for valuing restricted stock. d. An executive receiving restricted stock is given the stock prior to vesting.arrow_forward
- Which of the following statements concerning common stock and the investment banking process is NOT CORRECT? a. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue. b. The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. c. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. d. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm. e. Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with…arrow_forwardWhy is a dissenting stockholder who demands payment of his shares no longer allowed to withdraw from his decision?arrow_forwardWhich of the following transactions would most likely affect shareholders’ equity? Group of answer choices Retirement of treasury shares Retirement of ordinary shares None of the choices Declaration of a large bonus issue Expiration of stock rightsarrow_forward
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