Question

Please answer D, E, and F.

Interpreting Disclosure on Employee Stock Options Intel Corporation reported the following in its 2015 10-K report. Share-Based Compensation Share-based compensation recognized in 2015 was $1.3 billion ($1.1 billion in 2014 and $1.1 billion in 2013) During 2015, the tax benefit that we realized for the tax deduction from share-based awards totaled $533 million ($555 million in 2014 and $385 million in 2013)... We use the Black-Scholes option pricing model to estimate the fair value of options granted under our equity incentive plans and rights to acquire stock granted under the 2006 Plan and rights to acquire shares of common stock under the 2006 Stock Purchase Plan. No options were granted in 2015. We based the weighted average estimated value of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating the fair value, on estimates at the date of grant, as follows Stock Stock Purchase Options Plan 2015 2014 2013 2015 2014 2013 n/a $3.61 $3. $6.56 $5.87 $4.52 Estimated values Expected life (in years) n/a 5.1 5 0.5 0.5 0.5 Risk-free interest rate 1.7% 0.8% 0.1% 0.1% 0.1% n/a Volatility n/a 23% 25% 25% 22% 22% Dividend yield n/a 3.6% 3.9% 3.1% 3.2% 4.0% Additional information with respect to stock option activity is as follows: Weighted Average Number of Exercise Price (In millions) tions December 29, 2012 202.8 $20.20 Granted 20.1 $22.99 Exercised (65.0 $18.76 Cancelled and forfeited (3.0) $22.58 (1.9) $22.56 Expired 53.0 $21.10 December 28, 2013 0.6 $25.34 Granted Exercised (63.7) $19.87 (2.7) $23.70 Cancelled and forfeited (9.9) $27.00 Expired 77.3 December 27, 2014 $21.30 Granted s- Exercised (21.9) $20.34 (1.1) $23.23 Cancelled and forfeited (0.1) $20.87 Expired 54.2 December 26, 2015 $21.65 Options exercisable as of 11.5 $20.25 December 28, 2013 4.7 $2029 December 27, 2014 December 26, 2015 $21.07 43.8 (a) What did Intel expense for share-based compensation for 2014? $1.bilion How many options did Intel grant in 2014? 600 thousand shares Compute the fair value of all options granted during 2014. (Round your answer to two decimal places.) $2.17 million Why do the fair value of the option grants and the expense differ? ⓔThe expense in 2014 is the cost of current and prior years' option grants that vest in the current year.v OThe expense is net of tax and the fair value of the options is pretax. OThe expense includes both the value of the options and the opportunity cost reflecting the higher price at which the shares could have been sold The expense is related to the current market price of the stock and the options are granted at historical costs. (b) Intel used the Black-Scholes formula to estimate fair value of the options granted each year How did the change in volatility from 2013 to 2014 affect share-based compensation in 2014? What about the change in risk-free rate? The decrease in the volatility estimate did not change share-based compensation expense and the decrease in the risk-free rate estimate decreased compensation expense. OThe decrease in the volatility estimate increased share-based compensation expense and the decrease in the risk-free rate estimate increased compensation expense. The decrease in the volatility estimate increased share-based compensation expense and the decrease in the risk-free rate estimate decreased compensation expense The decrease in the volatility estimate did not change share-based compensation expense and the decrease in the risk-free rate estimate increased compensation expense. Mark 1.00 out of 1.00 (c) How many options were exercised during 2015? 21.9 million shares Estimate the cash that Intel received from its employees when these options were exercised (Round your answer to one decimal place.) $445.45 V million (d) What was the intrinsic value per share of the options exercised in 2015? (Hint: Assume that Intel grants options at-the-money.) x per share If employees who exercised options in 2015 immediately sold them, what "profit" did they make from the shares? (Round your answer to two decimal places.) xmillion (e) The tax benefit that Intel will receive on the options exercised is computed based on the intrinsic value of the options exercised. Estimate Intel's tax benefit from the 2015 option exercises assuming a tax rate of 37%. (Round your answer to two decimal places.) x million (f) What was the average exercise price of the 0.1 million options that expired in 2015? x per share Explain why employees might have let these options expire without exercising them. (Hint: Assume that Intel's stock price was $32.19, on average, during fiscal 2015.) OEmployees might have felt that the stock price would increase in the future and preferred to wait to exercise their options. olf the stock price was less than the strike price of the options, it would not be economically rational for employees to exercise these options. OEmployees might have left the company. Employees might have chosen to receive their benefit in the form of compensation.

Answer 1

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