Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Question
Chapter 12, Problem 13PS
a)
Summary Introduction
To discuss: The two following situations regarding stock-option packages.
b)
Summary Introduction
To discuss: The two following situations regarding stock-option packages..
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Students have asked these similar questions
An executive compensation scheme might provide a manager a bonus of $1,000 for every dollar by which the company’s stock price exceeds some cutoff level. In what way is this arrangement equivalent to issuing the manager call options on the firm’s stock?
A company's board thinks it needs to reward top management for advancing the
company's aims. The board decides on bonuses based on share price rises at the end
of each year. Bonuses will be given in shares that managers can keep or sell. What are
the ramifications of such a bonus scheme?
In developing a compensatory share option plan, a company's objective is
to motivate executives and employees to manage the company in a way that increases stock price.
to decrease employee turnover.
to enhance compensation packages without having to expend cash.
to do all of these options.
Chapter 12 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 12 - Prob. 1PSCh. 12 - Terminology Define the following: a. Agency costs...Ch. 12 - Prob. 3PSCh. 12 - EVA Here are several questions about economic...Ch. 12 - Accounting measures of performance The Modern...Ch. 12 - Economic income Fill in the blanks: A projects...Ch. 12 - Prob. 7PSCh. 12 - Prob. 8PSCh. 12 - Prob. 9PSCh. 12 - Prob. 10PS
Ch. 12 - Management compensation We noted that management...Ch. 12 - Prob. 12PSCh. 12 - Prob. 13PSCh. 12 - Prob. 14PSCh. 12 - EVA Herbal Resources is a small but profitable...Ch. 12 - Prob. 16PSCh. 12 - Economic income Consider the following project:...Ch. 12 - EVA Use the Beyond the Page feature to access the...Ch. 12 - Accounting measures of performance Use the Beyond...Ch. 12 - EVA Ohio Building Products (OBP) is considering...
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Similar questions
- A company wants to reward key employees and is considering a restricted stock plan. They have asked you for advice on whether there is an advantage to offering restricted stock units instead of a restricted stock award. What happens if you are fired, retire or die prior to the end of the vesting period?arrow_forwardSuppose you own stock in a company. The current price per share is P25.00. Another company has just announced that it wants to buy your company and will pay P35.00 per share to acquire all the outstanding stock. Your company’s management immediately begins fighting off this hostile bid. Is management acting in the shareholders’ best interests? Why or why not?arrow_forwardWhat kind of option can be used to incentive CEOs? Discuss the difference between stock option compensation and stock compensation.arrow_forward
- Give typing answer with explanation and conclusion 1. To incentivize our employees, we are considering issuing them employee equity. The average employee would be issued stock options to purchase 800 shares at our current stock price of $210 per share. We are hopeful that the Smoothie business will catapult us to $230 per share in the future but recognize the risks. If an employee exercises the options at $210 per share, how much would the employee make before taxes?arrow_forwardNizwa investment company is willing to buy the equity shares directly from various companies as they think that buying the shares at the first moment will always give benefits for long timeThe market from where this transaction will be carried out is termed as a.Primary Market b.Regular Market c.Secondary Market d.None of the options A financial statement which shows the status of the worth of a company on a certain date is known as a.Cash flow statement b.Balance Sheet c.All of the optionsarrow_forwardIn a few sentences, answer the following question as completely as you can. Imagine you are the treasurer of a small manufacturing firm. Your firm is planning to go public (i.e., sell stock to investors for the first time). One unresolved question concerns the market’s required return on the stock. Given what you have learned, how do you think the required return will affect the market value of your firm’s stock? How would you go about estimating this rate?arrow_forward
- Provide an explanation of the impact of external factors on the financial position of your selected company. Use the Interest Rates Spreadsheet to demonstrate the implications of interest rate changes on at least one. Specifically, the following critical elements must be addressed: Macroeconomic Items: The CEO of your selected company is convinced that financial analysis should hinge only on what is happening internally within the company. Convince the CEO otherwise based on the following: Analyze the implications of interest rate changes on any of your calculations. Support your claims. Determine how an issue in the overall stock market—negative or positive—might impact the company’s stock valuation numbers, other financial variables, or its overall portfolio management. Support your response with evidence through research, references, and citations. Analyze the impact of any external factor of PepsiCo. discussed throughout the course on the company’s financial position.…arrow_forwardThe rationale behind granting stock options is toinduce employees to work harder and be moreproductive. As the stock price increases (presumably due to their hard work), the employees sharein this added wealth. Another way to share thiswealth would be to grant shares of stock ratherthan options. What are the advantages anddisadvantages of using stock options rather thanshares of stock as employee incentives?arrow_forwardYou are considering buying stock of a particular company. Your plan is to buy the stock today, receive dividend payments exactly one year from now, receive dividend payments again exactly two years from now, and immediately after receiving dividends in the second year, you would sell the stock. You paid a professional to perform fundamental analysis on the company, and you receive the following information based on that analysis: 1. expected dividend payment for one share one year from now: $21 2. expected dividend payment for one share two years from now: $34 3. expected sale price of one share of stock two years from now: $340 You may assume there is no inflation. If the prevailing interest rate is 7%, at what price would you consider a share of this company to be fairly valued today? (If necessary, round your answer to the nearest integer)arrow_forward
- Your company is finally ready to sell its shares to the public. The manager of your company decided to sell 20% of total shares to an investment bank. In which market this transaction will take place? Select one: a.Secondary market b.Bonds market c.Primary market d.Stock exchange market e.None of the abovearrow_forwardCompensatory Share Option Plan Tom Twitlet, president of Twitlet Corporation, is considering establishing a compensatory share option plan for the companys 20 top executives. Tom wants to set the terms of the plan so that the number of options the executives can exercise increases based on a specified increase in the companys future earnings. Tom wants to make sure that the plan cannot be manipulated but, in addition, it should properly motivate the executives to stay with the company and make it successful. Given this concern, he wants to know how the increase in earnings should be specified: Should it be a dollar amount or a percentage change, and should the change in earnings be compared to the companys past results or against industry results? He also is interested in understanding how to determine the service period of the plan. Finally, Tom wants to understand the accounting for the plan and how it will affect the companys financial statements. Required: Prepare a memo to Tom that briefly explains the issues involved in specifying the terms used in the plan and accounting for the terms of this type of compensatory share option plan.arrow_forwardWrite a brief description of the logic behind the development of the time value formula for annuities. Why does stock-based compensation create a moral hazard for executives?arrow_forward
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