Under its executive stock option plan, W Corporation granted options on January 1, 2013, that permit executives to purchase 15 million of the company's $1 par common shares within the next eight years, but not before December 31, 2015 (the vesting date). The exercise price is the market price of the shares on the date of grant, $18 per share. The fair value of the options, estimated by an appropriate option pricing model, is $4 per option. No forfeitures are anticipated. The options are exercised on April 2, 2016, when the market price is $21 per share. By what amount will W's shareholder's equity be increased when the options are exercised?
A)$60 million.
B)$270 million.
C)$315 million.
D)$330 million.

Question

Quizplus · Accepted Answer

When the options are exercised, the shareholders' equity increases by the total cash received from the exercise of the options. The exercise price is $18 per share, and 15 million shares are purchased, so the increase in equity is 15 million shares * $18 = $270 million.

Under Its Executive Stock Option Plan, W Corporation Granted Options