What is the effect of the exercise of stock options?
A)They generate cash to the issuing firm and therefore increase profit per share.
B)They are an expense at the time of exercise.This lowers net income.
C)They increase debt and lower borrowing capacity but have no effect on profit.
D)They increase the number of shares outstanding.
E)They have no immediate effect on profitability.

Question

Quizplus · Accepted Answer

The exercise of stock options increases the number of shares outstanding, as the option holder purchases shares at the option price. This dilutes the ownership percentage of existing shareholders and can impact earnings per share. However, it does not necessarily have an immediate effect on profitability or generate cash for the issuing firm. Option exercises can also result in tax implications and administrative expenses for the issuing firm.

What Is the Effect of the Exercise of Stock Options