The 6000 excess 3000 shares x 2 per share is reported

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the $6,000 excess (3,000 shares X $2 per share) is reported as an increase in additional paid-in capi- tal. (Ifthe reissue price is below the repurchase price, then additional paid-in capital is reduced urn it reaches a zero balance, after which retained earnings are reduced.) Again, there is no effect on tbe income statement as companies are prohibited from reporting gains and losses from repurchases reissuances of their own stock. The treasury stock section of Aon's balance sheet is reproduced below: (In thousands except for share amounts) 2010 2009 $(2,079) $(3,859 Treasury stock at cost (shares: 2010 - 53.6; 2009 - 96.4) . Aon has repurchased a cumulative total of 53.6 million shares of its common stock for $2,0 million, an average repurchase price of $38.79 per share. This compares with total contrib capital of $4,386 million, see Exhibit 8.1. Thus, Aon has repurchased about 47% of its origi contributed capital in dollar terms, which represents 14% of contributed capital in terms of sh (53.6 million / 385.9 million). Although some of Aon's treasury purchases were to meet sn option exercises, it appears that most of these purchases are motivated by a perceived low sn price by Aon management. ANALYSIS DECISION You Are the Chief Financial Officer -- -- ----- As CFO, you believe that your company's stock price is lower than its real value. You are consi ing various alternatives to increase that price, including the repurchase of company stock in • - market. What are some factors you should consider before making your decision? [Answer, p. 8- Analyzing Stock-Based Compensation Common stock has been an important component of executive compensation for decades. T.: general idea follows: If the company executives own stock they will have an incentive to inc its value. This aligns the executives' interests with those of other shareholders. Although - strength of this alignment is the subject of much debate, its logic compels boardsof directors most American companies to use stock-based compensation. Employee Stock Options One popular incentive plan is to give an employee the right to purchase common stock at a specified price for a given period of time. This is called a stock option plan. Options allow emp ees to purchase a predetermined number of shares at a fixed price (called the exercise price or SJ price) for a specified period of time. Because there is a good chance of future stock price incr options are valuable to employees when they receive them, even if the exercise price is ex equal to the stock's market price the day the options are awarded. The intrinsic value of an a - is the difference between the current stock price and the option's strike price. When an opti issued with a strike price equal to the current stock price, which is common practice among L companies, the option has a $0 intrinsic value.
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Module 8 I Equity Recognition and Owner Financing 8-10 Companies use employee stock options (ESO) as a means to compensate employees and to align the interests of employees and shareholders. The notion is that employees will work to increase their company's stock price when they can benefit directly from future price es. Because an employee with stock options can purchase stock at a fixed price and resell
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