.....company would expense the 1000 share options at $15 (1000 x $15 = $15,000), as this was fair market value at the time of expense, based on Black-Scholes (Harper, 2017). In 2014, the expense would be $3 per share option (1000 x $3 = $3,000), because that is the amount of increase in the value of the options that derives from the change in the exercise price.
The accounting for the awards would change after the options became fully vested, because the value of the options would no longer be based on Black-Scholes. Instead, the options would be based on the difference between the new exercise price and the old exercise price. After the options have vested, there is no longer any time value to the options, so an options model for pricing is no longer necessary -- they are just shares at that point because the employees no longer need…...
Executive Stock Option Plans
"If the company does not do better than its competitors, but the stock market goes up, executives do very well from their stock options. This makes no sense." Discuss viewpoint. Can you think of alternatives to the usual executive option plan that take the viewpoint into account?
Executive stock options are performance-based incentive plans that became popular in the 1950s and 1960s. They declined due to the stock market crash of the 1970s, but returned aggressively returned in the 1990s (Kole, 1997). Today, most companies grant stock options to their top officers as part of executive compensation, along with salary and bonuses. Options that are awarded as part of a compensation package can be very valuable to executives when stocks are performing well. The challenge comes in when stock value is realized for executives even when a company is not faring well at all. This is problematic.
In general,…...
mlaReferences
Cicero, D.C. (2009). The manipulation of executive stock option exercise strategies: Information timing and backdating. Journal of Finance, 64(6), 2627 -- 2663.
Collins, D.W., Gong, G., & Li, H. (2009). Corporate Governance and Backdating of Executive Stock Options. Contemporary Accounting Research, 26(2), 403-445.
Hamilton, S. And Wise, D. (2008). Adding performance criteria to your stock options. Hay Group. Retrieved from http://208.254.39.65/haygroupusmkting/e_article001162460.cfm.
Hess, D. (2012). More Stock Rewards Tied To Performance. Crain's New York Business, 28(31), 0015.
employee stock option pricing is effected by the bonus plan hypotheses as discussed in the Watts and Zimmerman article.
Employee stock option pricing is an option on the common stock of a company that is issued as a form of non-cash compensation. estrictions on the option (as for instance vesting and limited transferability) are ways in which the business attempts to align its own interests with those of the holder's interests. In the event of the company's stock rising, holders of options generally experience a direct financial benefit, which gives employees the incentive to behave in ways that will boost the company's stock price (Summa; web).
The management compensation hypothesis, otherwise known as the Bonus plan hypothesis accordingly states that managers whose incentives are tied up with the firm's accounting performance are more likely to use accounting choices that reduce reported profits and manipulate their accounting methods and records in particular…...
mlaReference
Summa, J. employee stock options. Investopedia.
www.investopedia.com/university/employee-stock-options-eso/eso3.asp
Watts, R. L & Zimmerman, J.L,"Towards a positive theory of the determination of accounting standards" The Accounting Review, January 1978, pp 112-34.
Valuation Project
Option Valuation
Value two call options, using two different option-pricing calculators, and/or pricing programs. The two calls you are to value are: Ticket Symbol (WFM)
The August 2014 $50.00 Whole Foods Call Option (50 is the Strike Price)
The January 2015 $50.00 Whole Foods Call Option (50 is the Strike Price)
The two models that were utilized are the Binomial and Black Scholes. The Binomial model is focused on looking at the option from a neutral perspective. This means that a series of valuations will be provided which are showing the potential prices movements. In this case of Whole Foods, the price of the stock must move up or down $1.10 to be able to realize a profit. ("Binomial Options Calculator," 2014) The Black Scholes model is designed to provide everyone with a better understanding of the possible valuations of the option. This takes place by looking at different types of options…...
mlaReferences
Binomial Options Calculator. (2014). Waikato. Retrieved from: http://www.management.waikato.ac.nz/kurt/frontpage/studentwork/danielchainov2003/bitree2.htm
Black Scholes Calculator. (2014). My Stock Options. Retrieved from: e=Calculatehttp://www.mystockoptions.com/bs2.cfm?ticker=&s=51.10&x=50&t=0.6&r=.05%25&v=25%25&calculat
Monte Carlo Options Calculator. (2014). Volatility Trading. Retrieved from: http://www.volatilitytrading.net/monte_carlo_option_calculator.htm
Option Pricer. (2014). Kluge. Retrieved from: http://kluge.in-chemnitz.de/tools/pricer/heston_price.php?filled=1&T=0.7&strike=50.00&barrier_down=&barrier_up=&rd=1.0005&rf=1.0375&spot=123.4&sigma_0=0.1197&sigma_a=0.108977&kappa=1.98937&xi=0.33147&rho=0.0258519&n_s=50&n_v=15&n_t=20
Futures Trading
The purpose of this project was to gain experience in the area of options and futures trading. For the purposes of this project, the values were obtained from various sources. The dates covered were 2/11/2002 to 05/10/2002. The company chosen for this project was the TJX Corporation, Inc. which is in the Retail sector of the S & P. 500. It was chosen primarily because it has been showing a bullish trend for 5 years and would be a good example of bull market trading. The stock was compared to the S & P. 500 Index (Symbol SPX). The final portion of the project required the use of a futures commodity. I chose Corn (Symbol CO (e)). It has been bearish since February.
All tests were ran in a bull market environment. Various trading strategies were tested on this option. The methods tested were a ull market Strategy, utterfly…...
mlaBibliography
Agribiz. Accessed through the Chicago Board of trade Website. Updated May, 2002. http://www.agribiz.com/cfor / Accessed May, 2002http://www.agribiz.com/cfor/accessed
Big Charts. Updated May 2002. Accessed May, 2002.http://www.bigcharts.com/javacharts/ .
Market Vector.com. Updated May, 2002. Accessed May, 2002.http://www.marketvector.com/stock-market/.
Nasdaq.com. Updated May, 2002. Accessed May, 2002.http://quotes.nasdaq.com/asp/option_chain.asp?symbol=SPX&selected=SPX.
The trader must pay the cost of the option ($5.00 x 100 shares = $500). The stick price starts to rise as expected and then stabilizes at $110: before the expiry date on the options contract, the trader can engage in a call option and purchase all the shares of the company's stock at $70, the strike price on the options agreement. The trader pays $7,000 for the stock and can sell the new stock on the market for $11,000, making a profit of $4,000.
Call vs. Put / Seller vs. Buyer
As this paper has already stated, options one the ability, without an obligation, to engage in a security at a set price within a particular time period. With a call option, the buyer has the right, though is not required to buy at a set quantity of a commodity or a financial instrument from a seller by a particular…...
mlaReferences
Diffen.com. (2013). Call Option vs. Put Option. Retrieved from Diffen.com: http://www.diffen.com/difference/Call_Option_vs_Put_Option
Dummies.com. (2013). Basic Strategies for Buying and Selling Puts in Stock Trading. Retrieved from Dummies.com: http://www.dummies.com/how-to/content/basic-strategies-for-buying-and-selling-puts-in-st.html
Fischer, J. (2010, May 21). Use Options to Protect, Hedge, and Gain. Retrieved from Fool.com: http://www.fool.com/investing/general/2010/05/21/use-options-to-protect-hedge-and-gain.aspx
Greg, G. (2011, December 20). When Is The Best Time To Sell Call Options? Retrieved from seekingalpha.com: http://seekingalpha.com/article/314918-when-is-the-best-time-to-sell-call-options
Raising Corporate Capital Issues
It appears fairly clear that the most advantageous means of raising capital for a corporation is to sell common stock. However, it is critical to realize that there are other things that a corporation must do in addition to selling common stock to make this method provide the degree of efficacy that the corporation desires. The reason that selling common stock can help to raise capital for the corporation is that it is possible to get many different people to invest in the company through this means. However, these individuals will tend to do so in greater numbers and in ways that continue to benefit the corporation if the company itself excels. Specifically, the company must simultaneously focus on its core business and keep abreast of its competition so that it can continue to generate revenue and, hopefully, provide the sort of profit margins that are viewed…...
It is expected that the bond will mirror the performance of the S & P. 500. ("Transaction History," 2010)
November 24, 2010
On November 24th several more new purchases would take place to include: General Motors, erkshire Hathaway, the Fidelity Immediate Government Fund and the Strategic Advisors Income Fund.
Stocks
General Motors was selected, because it could help to provide the portfolio with above average growth. The results were that that stock would see an increase of 1.4%. ("Transaction History," 2010)
erkshire Hathaway was purchased to provide the portfolio with stability and diversification. This investment is expected to outperform the major market averages. The results were up .96%.( "Transaction History," 2010)
Mutual Funds
The Fidelity Intermediate Government Fund was selected because of their focus on medium term Treasury investments. This is expected to underperform the market averages. The results were that the position declined by 2.55%. ("Transaction History," 2010)
The Strategic Advisors Income Fund was selected to…...
mlaBibliography
Account Details. (2010). Stock Trak. Retrieved from: http://www.stocktrak.com/private/account/summary.aspx
Ford Posts 68% Rise in Third Quarter Income. (2010). MSNBC. Retrieved from: http://www.msnbc.msn.com/id/39845528/ns/business-autos/
Transaction History. (2010). Stock Trak. Retrieved from: http://www.stocktrak.com/private/account/transactionhistory.aspx
Kavilanliz, P. (2010). Black Friday. CNN Money. Retrieved from: http://money.cnn.com/2010/11/27/news/economy/Black_friday_2010_sales/
Part 8
In regard to the organizational structure, al-Mart Stores can be said to be organized by divisions. In this regard, we have al-Mart supercentres, Sam's Clubs etc. Currently, the company's president is Mr. Mike Duke. Other key management positions in the firm include the position of chief financial officer, vice chairman, chief executive officer-international operations, and chief executive officer- al-Mart U.S.. These key positions are currently held by Mr. Charles M. Holley Jr., Mr. Eduardo Castro-right, Mr. Doug McMillon and Mr. illiam S. Simon respectively.
Part 9
Headline 1
"Stagnant ages, High Unemployment Slam al-Mart U.S. Sales: Domestic Sales at orld's Largest Retailer Post Two-Year Slump." (5/17/2011). (MSN n.p.)
Impact and Reason
In my own opinion, the news item above will bring about a decrease in the price of al-Mart's Store Stock. My reasoning in this case is that based on a decline in sales, investors will not be so keen on buying the stock…...
mlaWorks Cited
LaRocco. L. "Wal-Mart's Quiet Tax Haven." CNBC. N.p. Sept 23rd 2011. Web. 18th Oct 2011. http://www.cnbc.com/id/44627207
MSN. "Stagnant Wages, High Unemployment Slam Wal-Mart U.S. Sales: Domestic Sales at World's Largest Retailer Post Two-Year Slump (5/17/2011)." MSN. N.p. May 17th 2011. Web. 18th Oct 2011.
http://www.msnbc.msn.com/id/43058535/ns/business-retail/#.Tp-zZrLPzoM
Rappeport, A. "Wal-Mart has First U.S. sales Rise in Two Years." Financial Times. N.p. Oct 12th 2011 Web. 18th Oct 2011.
Regardless of one's appetite for risk, it is essential that some diversification of assets is used to prevent 'losing' money by saving money in a bank account alone, although noninsured investments should not be concentrated on one area of the economy, to protect against potential losses.
Even in today's economic climate, investors should allocate some of their funds in safe, but higher-interest bearing sources. These might include certificates of deposits or CDs, which can be allocated into different accounts so the CDs mature at different times, to free up more of the saver's money. These safer investments may also include government bonds of stable governments and corporations, as well as preferred stock for companies that offer this option. Unlike CDs less than $250,000 in value, however, bonds and preferred stocks are not insured by the government.
The concept of the future value of money underlines the importance of saving in general.…...
Real options valuation: KLM ailines flight options
The object of this pape is to delive a eal option valuation of an option on an ai ticket fom KLM Ailines. The pape consists of seveal pats: (i) a file explaining the poblem, the modeling choices and the solutions (ii) a table with calculations and; (iii) the conclusion.
The value of an options contact elies on a vaiety of diffeent vaiables. In addition to the value of the undelying asset itself, options ae extemely complex to value. Thee ae many picing models in cuent use, though all basically incopoate the concepts of moneyness, ational picing, put-call paity, option-time value.
Relevant Definitions:
Moneyness is a measue of the degee to which a deivative is likely to have positive monetay value at its expiation.
Rational picing is the assumption in economics that asset pices will eflect the abitage-fee pice of the asset as any deviation fom this pice will…...
mlareferences supporting the theory that option traders use much more robust hedging and pricing principles than the Black, Scholes and Merton model.
9. Triana, Pablo (2009). Lecturing Birds on Flying: Can Mathematical Theories Destroy the Financial Markets?. Wiley. ISBN 9780470406755. The book takes a critical look at the Black, Scholes and Merton model.
10. KLM News Release, Nov. 12, 2010, Take an option on a flight, at, http://www.klm.com/travel/nl_en/about/news_press/travel_news/Take_an_option_on_a_flight.htm
11. KLM News Release, Feb. 9, 2011, Financial Year 2010-2011, http://www5.klm.com/corporate/en/newsroom/press-releases/archive-2011/financial-year-2010-11.html
12. Understanding Option Pricing, http://www.investopedia.com/articles/optioninvestor/07/options_beat_market.asp
Employee Stock Ownership on Employees in the Airlines Industry since September 11th.
Review current materials on the issue.
Airline industry ESOPs tend to be very volatile.
This paper will examine the effects of the September 11th tragedy on employees' employee stock ownership plans in the airlines industry. The following generic information is provided for background before examining the main issue for this paper.
In the United States, the main vehicle for employee ownership in a company is the Employee Stock Ownership Plan (ESOP) which first became a recognized plan in 1974. There are between 17 and 20 million U.S. employees participating in large ESOPs or other contribution plans holding stock. Employees may own stock directly in their companies through stock purchase programs or be members of work cooperatives.
Studies find the employee ownership has a positive impact on performance even in adverse times. September 11th adversely affected the majority of domestic carriers in the…...
mlaWorks Cited
Douglas Kruse, Ph.D. "Research Evidence on Prevalence and Effects of Employee Ownership. 2002.http://wwww.chrs.rutgers.edu.February
United Airlines. Form 10K. Securities and Exchange Commission.
Southwest Airlines. Form 10K. Securities and Exchange Commission.
Continental Airlines. Form 10K. Securities and Exchange Commission.
Corporate Finance
UnitedHealth Group Stock
This report will provide insight into the UnitedHealth Group Stock from an investor's perspective. The report will show a financial analysis included with an overview of the company's current health standing. The paper will also provide a summary of the company and their products and services. The key to any intelligent investing strategy lies in the investor knowing what a stock is really worth and also if it is safe to buy, sell or hold. Therefore, since this report is from an investor's perspective, the company's stock and industry will be reviewed so as to present a big picture of where United Health is today and where they want to go in the future.
Over the five past years the UnitedHealth Group stock has been making great progress as analysts consistently consider the group a strong buy option. As can be seen from the two stock splits over…...
mlaWorks Cited
UHC Home Page. Ed. UnitedHealthcare. UNH. http://www.uhc.com/ .
United Health Group Home Page. Ed. United Health Group. UnitedHealth Group. http://www.unitedhealthgroup.com/ .
UnitedHealth Group. Ed. Yahoo Finance. Yahoo Finance. http://finance.yahoo.com/q?s=UNH&d=t .
If you need to type anything after the Reference List then start it on this page
The reason that the subject lends itself to natural resources or real estate is that there will be some information available in those areas, making the valuation less difficult than in innovative areas.
The pessimistic approach is characterized by the divest/shrink option. When a firm is divesting or shrinking it can first scale down, which means that it can "shrink or shut down a project part way through if new information changes the expected payoffs;" this option lends itself to capital intensive industries or industries dealing with financial services (Mauboussin, 1999). ather than shutting down a project, a company can also choose to switch down, which involves switching "to more cost-effective and flexible assets as new information is obtained," and might be used in smaller companies, where the wholesale shut-down of a project could end a business (Mauboussin, 1999). The scope-down option is the mirror image of the above-mentioned scope-up…...
mlaReferences
Discounted cash flow- DCF. (2009). Retrieved February 2, 2009, from Investopedia.com.
Web site: http://www.investopedia.com/terms/d/dcf.asp
Espinoza, R.D. And Luccioni, L.X. (2007). Simplified investment valuation model for projects with technical uncertainty and time to build. Retrieved February 1, 2009, from Real-Options.org. Web site: http://www.realoptions.org/Academic/espinoza_new.pdf
Giat, Y., Hackman, S., and Subramanian, a. (2007). Risk, uncertainty and optimism in venture capital relationships. (2007). Retrieved February 3, 2009, from Real-Options.org. Web site: http://www.realoptions.org/Academic/Subramanian_
By opening stock options to middle management and employees, it was assumed that better employee performance would be incentivized. As company stock prices go up, it creates a greater spread between the option price when it was granted to the employee and the hypothetical sale price at the end of the vesting period. Consistently better performance over a longer period of time would yield greater reward when the option is exercised. However, as Hall and Murphy again point out, "even if employees can increase the value of the firm, their share of that gain through their option holdings is very small. Combining this enormous free-rider problem with the risk imposed on employees through stock-based pay, it seems obvious that cash-based incentive plans based on objective or subjective performance measures can provide stronger and more efficient pay-performance incentives."
Despite many early statements in the life of the practice that employee stock…...
mlaReferences
Calomiris, C. a. (2004, 01-08). Options Pricing and Accounting Practice. Retrieved 12-13, 2010, from Should We Expense Stock Options: http://docs.google.com/viewer?a=v&q=cache:tDxxxPDG3cwJ:www0.gsb.columbia.edu/faculty/ccalomiris/papers/Options%2520Pricing%2520and%2520Accounting%2520Practice.pdf+Stock+options+are+an+expense&hl=en&gl=us&pid=bl&srcid=ADGEEShtdjeKitOxVfuENYIeyxgGdUiOjraoDHCLwH-WWxt9w30pnL310kAkP21iDHhBpErxlJ6mC_GQS6NEu7L3UGdc6T1ky33N1e7CFGL_NSZAn5ntALxB4KVgA2vjEiww911f6x4d&sig=AHIEtbRx6dSwLFzFHZnpHTpV0lsNIVpCYw
Core, J. a. (2001). Stock option plans for non-executive eployees. Journal of Financial Economics (61), 253-287.
Engel, E. a. (2001, Jan.). The Roles of Performance Measures and Monitoring in Annual Governance Decisions in Entrepreneurial Firms. Retrieved 12-13, 2010, from an Analysis of Executive Compensation, Ownership, and Control in Closely Held Firms: http://docs.google.com/viewer?a=v&q=cache:5vp-iWjpPb4J:faculty.chicagobooth.edu/ellen.engel/research/egh-rev-11_2.pdf+%E2%80%98%E2%80%98Stock-based+pay+in+new+economy+firms%E2%80%99%E2%80%99.+Journal+of+Accounting+and+Economics,&hl=en&gl=us&pid=bl&srcid=ADGEESifIyqUeDNwUoNkeDagDN_o40V-Jd9R56ECpswKKWzRQRdz_dZzpDHfcmTAKvZCDwZPpz9ZtR51HmXhCZ408jF-cv485C4m1xIxTy2zfTfQ4rp_g-4KFhIUdwKFVtmNCOWy82W5&sig=AHIEtbQapxbbbr0z-APPf2sdFQgWOYglLA
Glater, J. (2009, March 26). Stock Options Are Adjusted After Many Share Prices Fall. New York Times, p. B1.
1. Hourly Compensation: Starbucks baristas are paid an hourly wage that varies depending on location and experience. Starting wage typically ranges from $9 to $12 per hour.
2. Benefits Package: Starbucks offers a comprehensive benefits package to its employees, including health insurance, dental and vision coverage, 401(k) retirement savings plan, paid time off, and discounts on store products.
3. Stock Options: Starbucks offers eligible employees the opportunity to participate in its Bean Stock program, which grants them stock options in the company.
4. Bonus Incentives: Starbucks employees may be eligible for performance-based bonuses and incentives based on individual and store performance.
5. Tuition Reimbursement:....
In conclusion, the intricate relationship between managerial compensation and financial reporting quality is a critical aspect of corporate governance. Various compensation plans, particularly performance-based incentives, can influence managerial actions and impact the accuracy of financial disclosures. The delicate balance between incentivizing transparency and minimizing the risk of earnings manipulation highlights the complexities of aligning incentives with sustainable business practices. It is evident that executive compensation, especially stock options tied to stock price, can significantly affect financial reporting quality and may lead to misreporting behaviors. Equity-based compensation has been linked to incentives for misreporting, while regulatory efforts to promote whistleblowing can....
Impact of Management Compensation on Financial Reporting Quality
Management compensation is a crucial aspect that can significantly influence the quality of financial reporting. The alignment between compensation structures and financial reporting practices affects the incentives and behaviors of executives, which in turn impact the reliability and accuracy of financial statements.
1. Performance-Based Compensation and Financial Reporting Manipulation
Performance-based compensation schemes, such as stock options or bonuses tied to financial targets, create incentives for executives to manage earnings to meet or exceed these targets. This can lead to aggressive accounting practices and the manipulation of financial data to present a more favorable financial picture.
2.....
1. In todays business world, the topic of executive pay levels in relation to company performance is a contentious issue that has sparked numerous debates and discussions. Executive compensation has been on the rise in recent years, with some CEOs and other top executives earning substantial salaries, bonuses, and benefits. At the same time, there are concerns about whether these pay levels are truly justified based on the performance of the company and its outcomes. This essay will delve into the various factors that come into play when determining executive pay levels and whether or not they align with the....
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