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At the beginning of the current year, Max Corp. granted restricted stock units (RSUs) representing 30 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $12 per share on the grant date. Ignoring taxes, what is the effect on earnings(net income) in the current year after the shares are granted to executives

Respuesta :

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Answer:

$90 million

Explanation:

Calculation to determine the effect on earnings (net income) in the current year after the shares are granted to executives

First step is to calculate the fair value of shares represented by RSUs

Using this formula

Fair value of shares represented by RSUs=Fair value per share*Shares represented by RSUs shares granted

Let plug in the formula

Fair value of shares represented by RSUs=$12 *30 million

Fair value of shares represented by RSUs=$360 million

Now let calculate the Effect on earnings

Using this formula

Effect on earnings=Fair value of shares represented by RSUs/Vesting period

Let plug in the formula

Effect on earnings=$360 million/4 years

Effect on earnings=$90 million

Therefore the effect on earnings (net income) in the current year after the shares are granted to executives is $90 million

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