5) On January 1, Year 1, Tony Corporation issued 700,000 stock options for 700,000 shares to a division manager. The options have an estimated fair value of $10 each. These options are not exercisable unless division revenue increases by 8% in four years. Tony estimates that it is probable that the goal will be achieved. What is pretax compensation expense for year 1?

A) $0

B) $1,750,000

C) $2,333,333

D) $7,000,000

7) Brian offered an incentive stock plan to its employees. On January 1, Year 1, 110,000 options were granted for 110,000 $1 par common shares. The exercise price equals the $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January 1, Year 4, and expire on December 31, Year 5. Each option has a value of $4 based upon an option pricing model.

What is the fair value of the award?

A) $110,000

B) $330,000

C) $440,000

D) $660,000