Suppose an Entity Grants 40 Share Options to Each of Its

question 9

Multiple Choice

Suppose an entity grants 40 share options to each of its 100 employees on the condition that they remain in service for 3 years.The employees may choose to exercise their options at the end of year 3,4 or 5.The payment will be in cash based on the value of the option at the exercise date.During the first year 7 employees leave and the company estimate that 13 people will leave in year 2.In fact,6 leave and the company estimate that 8 will leave in year 3.In the third year 10 people leave.At the end of the third year 10 employees exercise their options; and in year 4 a further 20.The remainder exercise their options in the final year.The company estimates the fair value of the options in years 1 - 4 as €20,€22,€28 & €34 respectively.Intrinsic values in years 3 - 5 are estimated as €2,500,€3,000 & €4,000 respectively. What is the remuneration expense in year 2?

• A)€21,333
• B)€25,014
• C)€38,693
• D)€46,347

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Definitions:

Market Price

The present cost at which a good or service can be purchased or sold in the market.

Profit-Maximizing Firm

A company that chooses its level of output and pricing strategy to achieve the highest possible profit based on its costs and the market demand.

Price Elasticity Of Demand

A measure in economics indicating how the quantity demanded of a good changes in response to a change in its price.

Marginal Cost

The increase in total cost that arises from an increase in the production of one additional unit of a good or service.