Darling Petrol Corp. granted stock options to executives in early 20X1. The stock options vest over five years and expire after eight years. In total, the options allow the purchase of 500,000 shares at $2.50 per share. Option pricing models indicate that the options have a total fair value of $1,750,000. Estimates of retention are 84% at the end of 20X1 and 82% at the end of 20X2. Required: 1. Provide the journal entries to be recorded with respect to the options at the end of 20X1 and 20X2. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.) 2. What would the balance be in the equity account for stock options at the end of the fifth year if retention remained at 82%? (Do not round intermediate calculations.) 3. Assume that actual retention was 82%, and the options were exercised at the end of the sixth year when the market price of common shares is $28. Provide the entry for exercise. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
Darling Petrol Corp. granted stock options to executives in early 20X1. The stock options vest over five years and expire after eight years. In total, the options allow the purchase of 500,000 shares at $2.50 per share. Option pricing models indicate that the options have a total fair value of $1,750,000. Estimates of retention are 84% at the end of 20X1 and 82% at the end of 20X2.
Required:
1. Provide the journal entries to be recorded with respect to the options at the end of 20X1 and 20X2. (If no entry is required for a transaction/event, select "No
2. What would the balance be in the equity account for stock options at the end of the fifth year if retention remained at 82%? (Do not round intermediate calculations.)
3. Assume that actual retention was 82%, and the options were exercised at the end of the sixth year when the market price of common shares is $28. Provide the entry for exercise. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)
4.Assume that retention was 82% but the options were allowed to lapse after eight years when the price of common shares is $1.30. Provide the entry for the lapse. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations.)
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