Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
Notethat thevalueper shareusingthis approachishigher thanthevaluepershareusingthefullydilutedapproachfor bothcompanies.Thediffer ...
In valuing employee options, however, there are five measurementissuesthatwehavetoconfront.Onerelatesto thefactthatnotalloftheop ...
outstandingatafirm,wearelookingatamixofvestedand nonvestedoptions. Thenonvestedoptions should be worth lessthanthevestedoptions, ...
selling and hedging option positions can lead to early exercise. 16 Brooks, Chance, and Cline (2005) argue that private informat ...
valuepersharethatwewillthencomparetothemarketprice to decide whether a stock is under- or overvalued. For instance,wemayconclude ...
offsettingitsoperatingincomeof$2.67billionthatyearand allowing Cisco to effectively pay little in taxes. We can accountforthista ...
toconsiderthepotentialtaxbenefitevenwhenoptions are out-of-the-money. Nowthattheaccountingruleshavechangedtoforceoption expensin ...
Black-Scholes and Modifications The conventional Black-Scholes option pricing model is designedtovalueEuropeanoptionsontradedass ...
probabilityofvesting,multiplyingthisprobabilityby theoptionvaluewillyieldanexpectedvalueforthe option. Whilepuristswouldstillres ...
Binomial Models The possibilityof early exercise and nonvesting,which is substantialinemployeeoptions,leadsmanypractitionersto a ...
22 This model takes into account the employee exit rate during the vesting period (thus taking into account the probabilitythato ...
solutiontotheemployeeoptionvaluationproblembycreating a“marketinstrument”thatwouldparallelemployeeoptions. Buyersofthenewinstrum ...
Inthefollowingtable,weestimatethevalueoftheoptions outstanding at Cisco and Google using the Black-Scholes model,adjustedfordilu ...
valueofequityandthendividingbytheprimarynumberof shares outstanding: Cisco Google Value of equity (in $ millions) $65,622.00$32, ...
Forbothfirms, theestimatedafter-taxvalueoftheoptions drops dramatically, leading to an increase in value per share. Ways of Inco ...
bythesameunitwhethertheoptionisout-of-the-moneyand hasthreeweekslefttoexpirationordeepin-the-moneyand hasfiveyearslefttomaturity ...
capitalization willalmost always eliminatethe bias in the comparison process. ILLUSTRATION 11.4: Adjusting P/E Ratio for Options ...
thesameadjustmenttothetrailing12-monthearnings,though the actual adjustment will probably be higher. Future Option Grants and Ef ...
compensation. The resulting increase in operating expenses will decrease operating income and after-taxcashflowsinfutureyears,th ...
Havingestimatedthevalueofexpectedfutureoptionissues, weareleftwith anotherquestion: Shouldweconsiderthis valueeachperiodasanoper ...
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