Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
income (prior to expensing share-based compensation) of $48.53 billion. FIGURE11.5EffectofEmployeeOptionExpensesonNet Income Sou ...
increasing thenumberof sharesoutstanding.This potential dilutioneffectfromoptionsoutstandingwillreducethevalue ofequitypershare, ...
grantsonvalue.However,mostfirmsthatgrantoptionswill continue to use them in the future, thus affecting future earnings. The expe ...
thevalueoftheequitytoreflecttheexpectedproceedsfrom the option exercise. The last approach values the options outstandingat fair ...
Toapplythefullydilutedapproachtoestimatetheper-share value, we value two companies with significant option overhangs—Cisco and G ...
Primary shares (in millions) 6,487.00 277.78 In-the-money options 591.00 25.61 Partially diluted shares 7,076.00 303.39 Value pe ...
productoftheexercisepriceandthenumberofoptions)are addedtothevalueofequity.Thelimitationsofthisapproach arethat,likethefullydilu ...
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 ...
«
31
32
33
34
35
36
37
38
39
40
»
Free download pdf