Question

First Link Services granted 5.6 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. The common shares have a market price of $14 per share on the grant date of the restricted stock award. 1. Ignoring taxes, what is the total compensation cost pertaining to the restricted shares? 2. Ignoring taxes, what is the effect on earnings in the year after the shares are granted to executives? (For all requirements, enter your answer in millions rounded to 2 decimal places (.e., 5,500,000 should be entered as 5.50).) 1. 2. Total compensation cost Effect on earnings million million

Answer 1

Solution:

No	Particulars	Effect	Amount
1.	Total Compensation cost		$78.40	million
2.	Effect on earnings	Decreased by	$19.60	million

Explanation:

1. Compensation cost = 5.6 million $\times$ $14 = $78.4 million

2. Total compensation cost ($78.4 million) is expended equally over four year vesting period,

earnings are decreased by $19.6 million each year.