Schmidt Electronics Offered an Incentive Stock Plan to Its Employees

Schmidt Electronics offered an incentive stock plan to its employees. On January 1, Year 1, 110,000 options were granted for 110,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model. What is the fair value of the award?

A) $110,000
B) $330,000
C) $440,000
D) $660,000

Correct Answer:

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