Reference no: EM133187794

Question - The following is a comparative balance sheet for a firm for fiscal year 2002 (in millions of dollars):

2002 2001 2002 2001

Operating cash 60 50 Accounts payable 1,200 1,040

Short-term investments (at market) 550 500 Accrued liabilities 390 450

Accounts receivable 940 790 Long-term debt 1,840 1,970

Inventory 910 840

Property and plant 2,840 2,710

Common equity 1,870 1,430

5,300 4,890 5,300 4,890

The following is the statement of common shareholders' equity for 2002 (in millions of dollars):

Balance, end of fiscal year 2001 1,430

Share issues from exercised employee stock options 810

Repurchase of 24 million shares (720)

Cash dividend (180)

Tax benefit from exercise of employee stock options 12

Unrealized gain on investments 50

Net income 468

Balance, end of fiscal year 2002 1,870

The firm's income tax rate is 35%. The firm reported $15 million in interest income and $98 million in interest expense for 2002. Sales revenue was $3,726 million.

Required -

a) Calculate the loss to shareholders from the exercise of employee stock options during 2002.

b) The shares repurchased were in settlement of a forward purchase agreement. The market price of the shares at the time of the repurchase was $25 each. What was the effect of this transaction on the income for the shareholders?