Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Inthefollowingtable,weestimatethevalueoftheoptions
outstanding at Cisco and Google using the Black-Scholes
model,adjustedfordilutionandusinghalfthestatedmaturity
(to allowfor early exercise). To estimatethe valueof the
options, we first estimate the standard deviation in stock
prices
24 overtheprevioustwoyears.Weeklystockpricesareused
to make this estimate, and this estimate is annualized.
25 Alloptions,vestedaswellasnonvested,arevaluedand
there is no adjustment for nonvesting.

Option Pricing Model Cisco Google

Number of options outstanding 1,436 25.61

Average exercise price $25.02 $24.41

Estimated standard deviation (volatility)45% 55%

Average stated maturity 5.17 9.00

Maturity adjusted for early exercise 2.58 4.50

Stock price at time of analysis $17.67 $295.97

Value per option $2.27 $274.27

Value of options outstanding $3,257.00$7,023.00

Tax rate 36.80% 35.00%

After-tax value of options outstanding $2,058.00$4,565.00

In estimating the after-tax value of the options at these
companies,wehaveusedthemarginaltaxrateof 35 percent.
Sincethetaxlawallowsfortaxdeductionsonlyatexercise
andonlyfortheexercisevalue,wearepotentiallyoverstating
the possible tax benefits (and understating the costs).

Thevalueper shareis computedin thefollowingtable by
subtracting the value of the options outstanding from the