productoftheexercisepriceandthenumberofoptions)are
addedtothevalueofequity.Thelimitationsofthisapproach
arethat,likethefullydilutedapproach,itdoesnotconsider
thetimepremiumontheoptionsandthereisnoeffectiveway
of dealing with vesting. Generally, this approach, by
underestimating the value of options granted, will
overestimate the value of equity per share.
Thebiggest advantageofthis approach is thatit doesnot
requireavaluepershare(orstockprice)toincorporatethe
optionvalueintoper-sharevalue.Aswewillseewiththelast
(and recommended) approach, there isa circularity that is
createdwhenthestockpriceisaninputintotheprocessof
estimatingoptionvalue,which,inturn,isneededto obtain
the value per share.
ILLUSTRATION 11.2: Treasury Stock Approach
Inthefollowingtable,wereestimatethevaluepershareusing
the treasury stock approach for Cisco and Google:
Cisco Google
Options outstanding 1,436.00 25.61
Average exercise price $25.02 $24.41
Proceeds from exercise $35,928.00 $625.00
Value of equity (in $ millions) $65,622.00 $32,187.00
+ Proceeds from exercise (in $
millions)$35,928.00 $625.00
Total value (in $ millions) $101,550.00$32,812.00
Fully diluted number of shares 7,923.00 303.39
Value per share $12.82 $108.15