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1、ExecutiveSummaryThischapterextendstheanalysisofoptionscontainedinChapter22.Wedescribefourtypesofoptionsfoundincommoncorporatefinancedecisions.ExecutivestockoptionsTheoptiontoexpandembeddedinastart-up.Theoptioninsimplebusinesscontracts.Theoptiontoshutdownandreopenaproject.ChapterOutline23
2、.1ExecutiveStockOptions23.2ValuingaStartUp23.3MoreontheBinomialModel23.4ShutdownandReopeningDecisions23.5SummaryandConclusions23.1ExecutiveStockOptionsExecutiveStockOptionsexisttoaligntheinterestsofshareholdersandmanagers.ExecutiveStockOptionsarecalloptions(technicallywarrants)ontheemplo
3、yer’sshares.InalienableTypicalmaturityis10years.Typicalvestingperiodis3years.Mostincludeimplicitresetprovisiontopreserveincentivecompatibility.ExecutiveStockOptionsgiveexecutivesanimportanttaxbreak:grantsofat-the-moneyoptionsarenotconsideredtaxableincome.(Taxesaredueiftheoptionisexercise
4、d.)ValuingExecutiveCompensationFASBallowsfirmstorecordzeroexpenseforgrantsofat-the-moneyexecutivestockoptions.Howevertheeconomicvalueofalong-livedcalloptionisenormous,especiallygiventhepropensityoffirmstoresettheexercisepriceafterdropsinthepriceofthestock.Duetotheinalienability,theoption
5、sareworthlesstotheexecutivethantheycostthecompany.Theexecutivecanonlyexercise,notsellhisoptions.Thushecannevercapturethespeculativevalue—onlytheintrinsicvalue.This“deadweightloss”isovercomebytheincentivecompatibilityforthegrantor.TopStockOptionGrantsCompanyCEOStockOptionAwardCitigroup,In
6、c.SanfordWeill$351,319,000AmericanExpressHarveyGolub$134,102,000CiscoSystems,Inc.JohnChambers$132,100,000BankofAmericaHughMcCollJr.$104,300,000HoneywellInc.MichaelBosignore$121,496,000ALCOAPaulO’Neill$96,353,00023.2ValuingaStart-UpAnimportantoptionistheoptiontoexpand.Imagineastart-upfirm
7、,Campusteria,Inc.whichplanstoopenprivatediningclubsoncollegecampuses.Thetestmarketwillbeyourcampus,andiftheconceptprovessuccessful,expansionwillfollownationwide.Nationwideexpansionwilloccurinyearfour.Thestart-upcostofthetestdiningclubisonly$30,000(thiscoversleaseholderimp
