Weaver Industries implements a new share-based compensation plan in 2011. Under the plan, the company's CEO and CFO each will receive non-qualified stock options to purchase 100,000, no par shares. The options vest ratably (1/3 of the options each year) over three years, expire in 10 years , and have an exercise (strike) price of $23 per share. Weaver uses the Black-Scholes model to estimate a fair value per option of $15. The company's tax rate is 35%.
a. Use the financial statement effects template to record the compensation expense related to these options for each year 2011 through 2013. Include the effects of any anticipated deferred tax benefits.
b. In 2014, the company's stock price is $20. If you were the Weaver Industries CEO, would you exercise your options? Explain.