At January 1, Year 1, under its restricted stock unit (RSU) plan, Label Corporation grants RSUs representing 10,000 of its $1 par common shares to executives. The shares are subject to forfeiture if employment is terminated within a five-year vesting period. Shares have a current market price of $10 per share and their average market price during Year 1 was $20 per share. What is the number of shares that will be added to the denominator of diluted EPS for Year 1?

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Business

Caroline Johnston

9 June, 13:25

At January 1, Year 1, under its restricted stock unit (RSU) plan, Label Corporation grants RSUs representing 10,000 of its $1 par common shares to executives. The shares are subject to forfeiture if employment is terminated within a five-year vesting period. Shares have a current market price of $10 per share and their average market price during Year 1 was $20 per share. What is the number of shares that will be added to the denominator of diluted EPS for Year 1?

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Triston Dominguez · Answer 1

The number of shares that will be added to the denominator of diluted EPS for Year 1 is 6,000 shares

Explanation:

For computing the added shares, first we have to compute per year expenses, than repurchased shares, afterwards, final amount will be come

Per year expenses = (Number of shares * price per share) : (Vesting period)

= (10,000 shares * $10) : (5 years)

= $20,000

The remaining expenses after one year would be equal to

= Total expenses - annual expenses

= $100,000 - $20,000

= $80,000

Now the repurchased shares would be

= (Remaining expenses) : (average market price)

= ($80,000) : ($20)

= 4,000 shares

So, the diluted shares would be

= 10,000 shares - 4,000 shares

= 6,000 shares