Question
Grass Inc. awards 1,000,000 share options on January 1, 2023. The award will vest in three years if the stock price increases 10%. In order
Grass Inc. awards 1,000,000 share options on January 1, 2023. The award will vest in three years if the stock price increases 10%. In order to vest, recipients of the award must remain employed by the company until the performance condition is satisfied. Grass Inc.'s share price on January 1, 2023, is $30. The fair value per option is $15. The company initially estimates that it is probable that the stock price will increase by 10% by the end of year three. In 2024, the company estimates that it is improbable that the stock price will increase by 10% by the end of year three. Therefore, in 2024, the company modifies the performance target to an increase in stock price of 5%. The fair value of the share options is $12 before the modification and $14 immediately after the modification in 2024. The modification did not affect any of the other terms or conditions of the awards; thus, the modification did not affect the option's per-share fair-value-based measure. Compute the compensation expense recognized in 2023, 2024, and 2025.
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