Under Its Executive Stock Option Plan, N Corporation Granted Options

Multiple Choice

Under its executive stock option plan, N Corporation granted options on January 1, 2009, 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, 2011 (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. Ignoring taxes, what is the effect on earnings in the year after the options are granted to executives?

A) $ 0
B) $20 million
C) $60 million
D) $90 million The $60 million total compensation is expensed equally over the three-year vesting period, reducing earnings by $20 million each year.