Aswath Damodaran 531
Valuing Disney’s options...
! At the end of 2003 , Disney had 219 million options outstanding, with a
weighted average exercise price of $ 26. 44 and weighted average life of 6
years.
! Using the current stock price of $ 26. 91 , an estimated standard deviation of 40 ,
a dividend yield of 1. 21 %. a riskfree rate of 4 % and the Black-Scholes option
pricing model we arrived at a value of $ 2 , 129 million.
! Since options expenses are tax-deductible, we used the tax rate of 37. 30 % to
estimate the value of the employee options:
! Value of employee options = 2129 ( 1 -. 373 ) = $ 1334. 67 million
In valuing the options, we modified the Black-Scholes model to allow for the
fact that exercising these options will affect the stock price (reducing it by
increasing the number of shares outstanding). We also used a historical
standard deviation in Disney’s stock price.
