In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2024. A total of150,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2025 $46 per share December 31, 2026 51 per share

The options were granted as compensation for executives services to be rendered over a two-year period beginning January 1, 2025. The Black-Scholes option-pricing model determined total compensation expense to be $1,500,000.

What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2025 under the fair value method?

a.

$2,625,000

b.

$1,650,000

c.

$1,500,000

d.

$750,000