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aev [14]
2 years ago
11

Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On J

anuary 1, 2018, 22 million options were granted, each giving the executive owning them the right to acquire five $1 par common shares. The exercise price is the market price on the grant date – $30 per share ($120 per option). Options vest on January 1, 2022. They cannot be exercised before that date and will expire on December 31, 2024. The fair value of the 22 million options, estimated by an appropriate option pricing model, is $47 per option. Ignore income tax. Wilson's compensation expense in 2018 for these stock options was:
Business
1 answer:
Sergeeva-Olga [200]2 years ago
4 0

Answer:

Wilson's compensation expense in 2018 for these stock options was $258.50 millions

Explanation:

Compensation Expense in 2018 Stock Option =Estimated value of Option at Jan 1, 2013 = 26 Million X $47 = $1222 Million

Estimated value of Option at Jan 1, 2018=22 Million X $47

Estimated value of Option at Jan 1, 2018=$1,034 million

Options vest on January 1, 2022, therefore, Fair value is spread over 4 Years of vesting period= $1,034 million/4

Fair value is spread over 4 Years of vesting period=$258.50 millions

Wilson's compensation expense in 2018 for these stock options was $258.50 millions

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A stock index is valued at $800 and pays a continuous dividend at the rate of 3% per year. The 6-month futures contract on that
yan [13]

Answer:

Possible options:

A. 38

B. 40

C. 42

D. There is no arbitrage opportunity.

Answer is B

Explanation:

With the given data, the no-arbitrage futures price should be; 800e(0.025-0.03)*0.50 =798−Since the market price of the futures contract is lower than this price there is an arbitrage opportunity. The futures−contract could be purchased and the index sold.−

Arbitrage profit is 798 - 758 = 40

8 0
2 years ago
Williamson, Inc. has a debt-equity ration of 2.5. The firm’s weighted average cost of capital is 10% and its pre-tax cost of deb
vredina [299]

Answer:

Debt Equity Ratio =2.5

Weight of debt =2.5/3.5

Weight of Equity =1/3.5

a. WACC =Weight of Equity*Cost of Equity+Weight of Debt*Cost of Debt*(1-Tax Rate)

10% = 1/3.5*Cost of Equity Capital+2.5/3.5*6%*(1-35%)

(10%-2.5/3.5*6%*(1-35%))*3.5 = Cost of Equity Capital

Cost of Equity Capital = 25.25%

b) Cost of Levered Equity Capital=Cost of Unlevered Equity Capital+Debt*(1-Tax Rate)/Equity*(Cost of Unlevered Equity Capital-Cost of Debt)

25.25% = Cost of Unlevered Equity Capital+2.5*(1-35%)*(Cost of Unlevered Equity Capital-6%)

Cost of Unlevered equity *(1+2.5*0.65)=(25.25%+2.5*0.65*6%)

Cost of Unlevered Equity =(25.25%+2.5*0.65*6%) / (1+2.5*0.65)

Cost of Unlevered Equity = 13.3333%

c) At debt Equity ratio of 0.75

Cost of Levered Equity Capital = Cost of Unlevered Equity Capital+Debt*(1-Tax Rate)/Equity*(Cost of Unlevered Equity Capital-Cost of Debt)

Cost of Levered Equity Capital= 13.3333% + (13.3333%-6%)*0.75*(1-35%)

Cost of Levered Equity Capital =16.9083%

WACC = Weight of Equity*Cost of Equity+Weight of Debt*Cost of Debt*(1-Tax Rate)

WACC = 1/(0.75+1)*16.9083%+0.75/(1+0.75)*6%*(1-35%)

WACC = 11.33%

At debt Equity ratio of 1.50

Cost of Levered Equity Capital=Cost of Unlevered Equity Capital+Debt*(1-Tax Rate)/Equity*(Cost of Unlevered Equity Capital-Cost of Debt)

Cost of Levered Equity = 13.3333% + (13.3333%-6%)*1.50*(1-35%)

Cost of Levered Equity = 18.5333%

WACC =Weight of Equity*Cost of Equity+Weight of Debt*Cost of Debt*(1-Tax Rate)

=1/(1+1.30)*18.5333%+1.30/(1+1.30)*6%*(1-35%)

=10.26%

7 0
2 years ago
Is Faraj legally required to pay this additional amount in this case? Melissa Faraj owns a lot and wants to build a house accord
lubasha [3.4K]

Answer:

The issues that arises between the Faraj and Siegel can be discussed by three different groups in resolving the contract agreement.

Note: Kindly find an attached copy of the complete question below.

Explanation:

Solution

In this case between Faraj and Siege'ls building contractors the following issue are discussed by three groups as follows:

(1) The contractor can increase the price of finishing construction based on inflation and the cost of raising materials during inflation prices for the materials increases or goes up and this will affect the customer gradually.

(2) Faraj will not pay the additional amount requested by Siegel because according to the contract the amount she has to pay is $153,000

(3) Issues or problems that might come up during construction is listed below:

  • Poor communication
  • Not feasible or impractical forecasting
  • The unavailability of structure

3 0
2 years ago
A budget line shows the Multiple Choice alternative combinations of two goods that will yield the same level of total utility to
GuDViN [60]

Answer:

Option (d) is correct.

Explanation:

A budget line is a graphical representation which shows the combination of two goods that are to be purchased by the consumer with his available income. A budget line also known as the budget constraint.

The budget line is represented by the following equation:

Suppose that there are two goods: A and B.

(Price of good A × Quantity of good A) + (Price of good B × Quantity of good B) = Income of the consumer

4 0
2 years ago
Joseline waited until December 12, 2019, to file her 2018 Form 1040 return. She did not request an extension. Her balance due fo
Marrrta [24]

Answer: $207.45

Explanation:

The latest date that Josephine should have filed her taxes by was April 15th 2019.

She instead waited till December 12, 2019.

9 partial and full months have passed since that time so her penalty will be for 9 months.

Penalty is 5% of the balance due:

= 461 * 5% * 9

= $207.45

6 0
2 years ago
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