If a company has 100 shares outstanding and 10 options at an exercise price of $5, what are the proceeds from the options?

• A. $50
• B. $5
• C. $500
• D. $1,000

Answer: (A)

To determine the proceeds from the options, one must calculate how the exercise of the options would contribute financially to the company. Each option allows the holder to purchase a share of the company's stock at an exercise price of $5.

In this scenario, there are 10 options available, and each option can be exercised for $5. Therefore, the total proceeds from exercising all 10 options can be calculated by multiplying the number of options by the exercise price:

10 options * $5 per option = $50.

Thus, the proceeds from exercising the options amount to $50. This calculation reflects the total cash that the company would receive if all options were exercised at the specified price. It’s crucial to focus on the multiplication of the number of options by the exercise price to arrive at the total proceeds, as this is the fundamental method for computing the proceeds from stock options.