Corporation Is Planning to Issue Options to Its Key Employees

question 17

Multiple Choice

Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options.Which of the following actions would decrease the value of the options, other things held constant?

• A)GCC's stock price suddenly increases.
• B)The exercise price of the option is increased.
• C)The life of the option is increased, i.e., the time until it expires is lengthened.
• D)The Federal Reserve takes actions that increase the risk-free rate.
• E)GCC's stock price becomes more risky (higher variance).

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Definitions:

Work in Process Account

A financial account found in the ledgers of manufacturing companies where costs related to the production process that are not yet complete are recorded.

Direct Labor Cost

Expenses related to employees who directly work on the manufacturing of products, distinct from indirect labor involved in supervisory and administrative roles.

Overapplied Manufacturing Overhead

A scenario in which the overhead assigned to goods or services surpasses the actual costs, necessitating adjustments in financial accounting.

Cost of Goods Sold

Cost of goods sold represents the direct costs attributable to the production of the goods sold by a company, including materials and labor.