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Answer :
The compensation expense for year 2 the ceo will receive cash would be B. $9,000.
The fair value of the share appreciation rights (SARs) at the end of year 1 was $18 for each SAR, and the fair value at the end of year 2 was $30 for each SAR. Since the CEO was granted 2,000 SARs, the total fair value of the SARs at the end of year 1 was 2,000 x $18 = $36,000, and the total fair value of the SARs at the end of year 2 was 2,000 x $30 = $60,000.
Therefore, the compensation expense for year 2 is the difference between the fair value of the SARs at the end of year 1 ($36,000) and the fair value of the SARs at the end of year 2 ($60,000), which is $60,000 - $36,000 = $24,000. Since the exercise price was $40 per SAR, the compensation expense is $24,000 - (2,000 x $40) = $24,000 - $80,000 = $9,000.
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