Reference no: EM131477031
Acct Big Data /Data Analytics Assignment
Accounting for stock options requires that employee stock options be valued with a model that includes six parameters. The company used in chapters15 and 16 to illustrate options was Pepsi. From chapter 16, here is the relevant information that Pepsi disclosed:
Stock-Based Compensation -
Our stock-based compensation program is designed to attract and retain employees while also aligning employees' interests with the interests of our shareholders.
Method of Amounting and Our Assumptions
We account for our employee stock options under the fair value method of accounting using a Black-Scholes valuation model to measure stock option expense at the date of grant.
Our weighted-average Black-Scholes fair value assumptions are as follows:
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2014
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2013
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2012
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Expected life
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6 years
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6 years
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6 years
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Risk-free interest rate
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1.9%
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1.1%
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1.3%
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Expected volatility
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16%
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17%
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17%
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Expected dividend yield
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2.9%
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2.7%
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3.0%
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The expected life is the period over which our employee groups are expected to hold their options. It is based on our historical experience with similar grams. The risk-free interest rate is based on the expected U.S. Treasury rate over the expected life. Volatility reflects movements in our stock price ova the most recent historical period equivalent to the expected life. Dividend yield is estimated over the expected life based on our stated dividend policy and forecasts of net income, share repurchases and stock pace.
Required:
1. In 2014, Pepsi changed three of the parameters used to estimate the option values. Evaluating each of these changes independently, indicate the effect of the change on the estimated value of the option.
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Parameter
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Effect of change on estimated option value
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Risk-free interest rate
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Expected volatility
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Expected dividend yield
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2. There are three files available for this assignment. Each file is set up similarly. The three files have information for the years 2012, 2013, and 2014. Each file contains the following information:
Identifying company information -
- Global Company Key which is an identifying code that the data source uses
- Ticker
- CUSIP is an acronym for Committee on Uniform Securities Information Procedures and is used when securities are traded in the US and Canada.
- Company name
- Fiscal Year-end Month
- SIC code is the Standard Industrial Classification code and indicates the firm's primary line of business.
Date of fiscal year end that parameter estimates were reported -
- Data date
- Data Year - fiscal
- Fiscal Year-end Month
Parameter Estimates -
- Dividend rate
- Life of Options
- Risk Free Rate
- Volatility
Indicate:
a. How many unique companies are included in the files for each year? Describe the process you used to determine that.
b. How many estimates are there for each of the parameters? Again, describe the process you used to determine that.
3. Now analyze whether the parameter changes were justified using the data provided in the data files provided. You can think about this from the perspective of management planning the changes or as the auditors evaluating the changes.
Your analysis should include:
a. A table summarizing relevant information from the file. Summarize what the information in your table indicates.
b. At least one graph with information from the file. Summarize what the information in your chart indicates.
c. For each of the three parameters that changed, indicate whether or not your analysis supports the change and how your analysis led to that conclusion.
d. What other data would have been useful in your analysis?
Assignment Files -
https://www.dropbox.com/s/6z9vhonc2j6biqr/Assignment%20Files.rar?dl=0