Use option-based methods of compensation

Assignment Help Financial Management

Reference no: EM131868428

Many companies use stock options (which are call options) to incentivize their employees, particularly C-level executives. An accounting rule dating back to 1972 states that these stock options can be expensed at the value of exercise. That is, they can be put as an expense on the balance sheet as the maximum of zero, and the difference between the fair value of the underlying stock and the exercise price of the option.

a. Does this rule over- or under-estimate the expense of stock market options? Explain.

b. Given your answer to (a), do you think that companies are over- or under-incentivized to use option-based methods of compensation?

Reference no: EM131868428

Questions Cloud

Discuss the ways that patient records are authenticated : Discuss the various ways that patient records are authenticated.

Provide er diagram with appropriate attributes : Provide E/R diagram with appropriate attributes. You may make any reasonable choice of data types. Remember to include any constraints.

Currently has debt outstanding with market value : Joe's Party Supply, Inc., currently has debt outstanding with a market value of $30.5 million and a yield to maturity of 6%.

Number of inputs of the circuit implementing the expression : Let the cost of an expression be the total number of gates plus the total number of inputs of the circuit implementing the expression.

Use option-based methods of compensation : Do you think that companies are over- or under-incentivized to use option-based methods of compensation?

Number of lines of student data : The marks are all out of 100. You will read in the data for each student, calculate their final mark, and then print out their id, the assignment

Why do providers focus on money more than patient care : Does profit in healthcare encourage providers to do more than what is necessary? Do providers focus on money more than focusing on patient care?

Patient files in the electronic medical records : You have access to all the patient files in the Electronic Medical Records (EMR). Your dilemma is that you have a professional responsibility

Personal information only in the cloud : Suppose that right now you begin storing all your personal information only in the cloud.

User Account

All Pages