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 10% discount.During 2016,employees purchased 8 million shares;during this same period,the shares had a market price of $15 per share at the end of the year.Martin's 2016 pretax earnings will be reduced by:
A)$ 0.
B)$ 12 million.
C)$108 million.
D)$120 million.

Question

Quizplus · Accepted Answer

The company offered a 10% discount to the employees, which means they bought the shares at $13.50 per share (10% discount on the market price of $15 per share). The total amount of money spent by the employees to buy 8 million shares is:

$13.50/share x 8,000,000 shares = $108,000,000

This amount will be deducted from the company's pretax earnings, as the company is responsible for providing the shares at a discounted price. Therefore, the correct answer is B). $12 million is 10% of the $120 million purchases made by employees.