Question I
In the beginning of the fiscal year 2041, a company grants the managers 6,000 options under its employee stock option plan (ESOP). The options have an exercise price of $35 and a vesting period of three years. The estimated fair value of the stock options is $4 per option. The company's stock is trading at $33 per share.
Task
i. Determine the compensation expenses related to the stock options that should be reported in the firm's FY 2041 income statement.
ii. Determine the effect if any on the firm's cash that the stock option grant has.
Question II
Five years ago, on December 31, 2050, an airline company invested in a new cargo airplane, which costed the company $40 million and had a useful life of 10 years and no salvage value. The firm uses the straight line depreciation method. In December 2055, the firm has carried out an asset impairment test, the result which suggests that the airplane is expected to generate a cash flow of $3 million per year for the remaining life of the five years.
Task
i. If a discount rate is 10%, what will be the amount of asset impairment loss, if any that the firm should report in its income statement?