...Accounting for Stock Options http://www.nysscpa.org/printversions/cpaj/2005/805/p30.htm Print Accounting for Stock Options Update on the Continuing Conflict By Nicholas G. Apostolou and D. Larry Crumbley AUGUST 2005 - In December 2004, a decade after bending to Congressional pressure and backing away from requiring the expensing of options on financial statements, FASB issued a revised standard to recognize stock-option compensation as an expense on income statements. Many in Congress may try to thwart the proposal before it becomes effective. A bill by Representative Richard Baker of Louisiana that would require expensing the cost of stock options for only the top five executives of a company has drawn the support of those groups still resolutely opposed to expensing. This time, however, FASB is likely to prevail. Investors are demanding tougher accounting standards, and the International Accounting Standards Board (IASB) has already passed rules requiring the expensing of options. Many large U.S. corporations have already voluntarily agreed to expense options. Finally, there is more concern about, and less support for, Congressional interference in FASB’s standards-setting process. History of the Debate Accounting for stock options has been one of the most controversial topics in accounting during the last decade. The principal debate is whether compensation expense should be recognized for stock options and, if so, the periods over which it should be allocated. Before...
Words: 2351 - Pages: 10
...Accounting for Stock Options http://www.nysscpa.org/printversions/cpaj/2005/805/p30.htm Print Accounting for Stock Options Update on the Continuing Conflict By Nicholas G. Apostolou and D. Larry Crumbley AUGUST 2005 - In December 2004, a decade after bending to Congressional pressure and backing away from requiring the expensing of options on financial statements, FASB issued a revised standard to recognize stock-option compensation as an expense on income statements. Many in Congress may try to thwart the proposal before it becomes effective. A bill by Representative Richard Baker of Louisiana that would require expensing the cost of stock options for only the top five executives of a company has drawn the support of those groups still resolutely opposed to expensing. This time, however, FASB is likely to prevail. Investors are demanding tougher accounting standards, and the International Accounting Standards Board (IASB) has already passed rules requiring the expensing of options. Many large U.S. corporations have already voluntarily agreed to expense options. Finally, there is more concern about, and less support for, Congressional interference in FASB’s standards-setting process. History of the Debate Accounting for stock options has been one of the most controversial topics in accounting during the last decade. The principal debate is whether compensation expense should be recognized for stock options and, if so, the periods over which it should be allocated. Before 1995...
Words: 1758 - Pages: 8
...mathematical model of a financial market containing certain derivative investment instruments. From the model, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of European-style options. The formula led to a boom in options trading and legitimised scientifically the activities of the Chicago Board Options Exchange and other options markets around the world.[2] lt is widely used, although often with adjustments and corrections, by options market participants.[3]:751 Many empirical tests have shown that the Black–Scholes price is "fairly close" to the observed prices, although there are well-known discrepancies such as the "option smile".[3]:770–771 The Black–Scholes was first published by Fischer Black and Myron Scholes in their 1973 paper, "The Pricing of Options and Corporate Liabilities", published in the Journal of Political Economy. They derived a stochastic partial differential equation, now called the Black–Scholes equation, which estimates the price of the option over time. The key idea behind the model is to hedge the option by buying and selling the underlying asset in just the right way, and consequently "eliminate risk". This hedge is called delta hedging and is the basis of more complicated hedging strategies such as those engaged in by investment banks and hedge funds. The hedge implies that there is a unique price for the option and this is given by the Black–Scholes formula. Robert C. Merton was the first to publish a paper expanding...
Words: 472 - Pages: 2
...Sally’s Compensation It’s the season for snow-melting, it’s the season for career interviews, and it’s also the season, hopefully, for lower unemployment rate. Sally Jameson, an MBA student graduated from the ivory tower HBS, is one of the lucky graduates and got a job from Telstar. Additionally, the generous employer offers her a special compensation package – she could choose either cash of $5,000 or 3,000 special options that allow her to buy as many as 3000 shares of Telstar’s stocks for $35.00 at her 5th anniversary employment. Today is May 27, 1992, we have a list of quotations of Short- and Long-term Call Options of Telstar stocks, a list of historical price and volatility of Telstar Common Stock since Jan, 82, and a list of T-bill security yields. Now we are here to help her make a choice. I. B-S Model for option pricing Today is the final day for Sally to make a choice, we relies on the famous Black-Scholes Model to price the options in the compensation. Before pricing, we need to know the volatility and the continuous compounded interest rate. For interest rate, we regard the 5 years T-bill bond yields as the “risk-free” rate and assume Sally and other investors of Telstar are risk-neutral. 1+5*BEY5yr=exp5r, where BEY5yr is the annualized Treasury Bill’s bond equivalent yield and r is the continuous compounded interest rate we want to derive, which is 5.2627%. Secondly, since historical volatility could not perfectly reflect the scenarios in the future...
Words: 319 - Pages: 2
...The current standard for reporting share-based payment transactions is the Statement of Financial Accounting Standards Number 123 revised which supersedes SFAS#123 and Accounting Principles Board opinion No. 25. SFAS#123R requires all publicly traded companies that issue stock options in place of wages to base the compensation cost on the fair value of the option when it is granted and to report the estimated compensation expense on their income statements. The standard allows companies to use either the fair value method created by Fisher Black and Scholes or the binomial lattice model. Both models use the current stock price, risk-free rate of interest, the strike price which is the price that the employee can buy the company stock at, the dividend yield, volatility of company’s stock price and the terms of the option as inputs (Schroeder, Clark, & Cathey, 2005). The fair value of the option granted to the employee will be evaluated annually to the end of the vesting period of the option. Non-public companies are also required to use the fair value method for pricing options, unless there is no way to measure that value. In its place private companies can use their industry sector index as a measure for valuing options. This standard was put into place because APB opinion #25 allowed companies not to report compensation cost at the granting of the option and the original SFAS#123 only required companies to disclose compensation cost in the footnotes and voluntarily in...
Words: 579 - Pages: 3
...In recent years especially with the financial crisis, a number of countries have found themselves needing a bail out of some sort. From the PIGS of Europe to South Asia and Africa. What all these countries have/had in common was the need for funds to facilitate a bailout of their faltering economies especially the banking sector. Like the countries that need a bail LDC always need money to finance their debt and pay off any interest especially in time of uncertainty. The purpose of this paper is to present a way for such countries to meet their financial needs and to protect their banking sectors. Unlike businesses or corporations, countries have access to natural resources which can be got and sold on the world market for a profit. Some countries even have an immediate market for their minerals like oil and gold. Almost all LDCs and a number of the other countries that needed bail out funds, have these resources that can be sold for profit. However in a situation where quick funds are needed, selling these resources would take a considerably long period of time which is not available at that instance. This can be remedied by the sell of long term covered call options on the resources of the different countries that need the funds. An options strategy is when an investor holds a long position (owns the asset: in our case mineral) in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset. This strategy is often...
Words: 476 - Pages: 2
...Assignment 1 BMOM5203 Student Name: Student ID: Answer of Case Study 1: as a Regional Manager my final option to solve this problem which will in turn achieve the organization objective, maximizing the long term return and customer satisfaction, will be option (5). Below is my analysis in reaching this decision. The first step I will implement is identifying the exciting problem, which in this case is the potential of losing a big customer due to the personal differences between the customer and sale representative and this will be a big lose to my company. Then I will list possible alternatives that can solve this problem. As per the options available in this case the first three options can be eliminated because they will not solve the problem reasonably. They either will have a negative impact on my employees or I will lose my customer which in both cases will decrease the company’s return. Finding another sales representative in the same region to deal with this customer can be another solution. However, it might not be achievable because it is not in the list of options available in this case and there might be only one representative in each region. So, the remaining best alternative could be either 4 or 5. First, as a manager I will try to get the sale representative and the customer and try to solve the problem with them. However, this option might not solve the problem because the real problem is the personal differences which can not be changed. In this case...
Words: 357 - Pages: 2
...Should Merck license the compound? Merck would be responsible for 1) the approval of Davanrik 2) the manufacture of Danavrik 3) marketing of Danavrik Merck would pay LAB for 1) initial fee 2) royalty on all sales 3) make additional pymts as Danavrik completed each stage of approval process (3 Phases) Additional facts: approval process should take 7 years patent will cover 17 years (7 of approval process nad 10 yr period of exclusivity beginning in yr 7) 1 Assumptions: All Cash flows are expressed as after tax present values discounted to time zero, including capital expenditures At any point "failure," investment decision is to stop funding Assuming Standard deviation of 0.5 Using T= 7 years in Black-Scholes Valuation 2 Decision Tree See worksheet "Decision Tree" 3 Detailed description of Real Option Technique "First, using a decision tree, I came up with a simple expected value of $13,980,000 based on the costs to complete each phase, the probabilities of completing each phase, and the costs and probabilities associated with failure at each step in the approval process. The expected value of successful completion with Depression only was $36,390,000, for weight only $1,200,000 and for both $26,880,000. The expected value of failure (including failure at any phase) was ($59,490,000). Next, I calculated the Valuations of each successful outcome using the decision tree analysis and the spectrum of outcomes with an asymetric distribution of rewards....
Words: 1029 - Pages: 5
...Three different methods of option pricing The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three different methods of option pricing are: The Black-Scholes model, binomial trees and Monte Carlo Simulation. The three...
Words: 295 - Pages: 2
...Dividend discount model The dividend discount model (DDM) is a way of valuing a company based on the theory that a stock is worth the discounted sum of all of its future dividend payments.[1] In other words, it is used to value stocks based on the net present value of the future dividends. The equation most always used is called the Gordon growth model. It is named after Myron J. Gordon, who originally published it in 1959;[2] although the theoretical underpin was provided by John Burr Williams in his 1938 text "The Theory of Investment Value". The variables are: is the current stock price. is the constant growth rate in perpetuity expected for the dividends. is the constant cost of equity for that company. is the value of the next year's dividends. There is no reason to use a calculation of next year's dividend using the current dividend and the growth rate, when management commonly disclose the future year's dividend and websites post it. Contents[hide] * 1 Derivation of equation * 2 Income plus capital gains equals total return * 3 Growth cannot exceed cost of equity * 4 Some properties of the model * 5 Problems with the model * 6 References * 7 Further reading * 8 External links | Derivation of equation The model sums the infinite series which gives the current price P. Income plus capital gains equals total return The equation can also be understood to generate the value of a stock such that the sum of its dividend yield (income) plus its growth...
Words: 564 - Pages: 3
...Have you ever risked something for someone else? Or wanted to help an animal in need? The story Aaron’s Gift is about a young boy, Aaron, and a pigeon and what Aaron went through to try to keep Pidge for a gift for his grandma. The story is about a boy skating on the sidewalk when he notices a bird, it is injured so he takes it to his sister that can help. Myron Levoy’s book “Aaron’s Gift” shows Aaron's journey with “Pidge” (the pigeon) at home and at a club that could be a gang. The theme of the story is love, and the author answers the question: “What would you risk for someone else?” by revealing Aaron as a caring boy by taking care of Pidge when he was injured and by defending Pidge in the end. As Aaron skates across the sidewalk he notices...
Words: 427 - Pages: 2
...Many people feel guilty when they see a dead, or hurt animal on the road. It usually makes people feel like they would want to help them. Myron Levoy’s short story, “Aaron’s Gift,” tells a tale of a boy who loves a pigeon who broke his wing and had it healed by the main character, Aaron. Myron's story answers the question, “What would you risk for family?” by telling how Aaron risked getting hurt to save the life of his pigeon. He wanted to give his beloved pigeon to his grandma as a gift , but even though he never gave her the pigeon, by setting the pigeon free, he gave her one of the best gifts of all. He also answers the questions by showing the readers that when Aaron was being chased, he knew that he had to let his beloved pigeon free....
Words: 379 - Pages: 2
...Art is a product of its times. This idea was strongly reinforced during the reading of the two essays. While the time between Kaprow’s “happenings” and Krueger’s responsive environments is relatively little the histories and motivations of each movement or art form are very different. The different histories of the works also influenced their goals and methods of interactivity. The interactive new media works that we encounter in today’s galleries have a much stronger resemblance and more in common with Krueger’s environments than the “happenings” of the 1960s. Today’s interactive art works are technology driven systems which can sense the world around them and can respond to it. While this bidirectional interaction is more similar to “happenings” where all participants can interact with one another and the “creators” of the event, there is a lack of interaction with technology. This technological element is at the root of both Krueger’s environments and modern interactive pieces. In this respect, both have closer ties to the interaction found in photography and film between the photographer/camera and the subject. This method of interaction is unidirectional but the interaction with the technology is key. Happenings came about in the 1960s while the art world was still in its post-war modernist period. The happenings followed in the footsteps of or in concert with “action” painting, the Fluxus and Dada movements, and the beatnik and hippie cultural movements. This anti-materialism...
Words: 569 - Pages: 3
...paglipas ng panahon, nasakop ng modernisasyon ang lahat ng gawain ng tao. Sila ay tuluyang nakadepende sa makinarya at kompyuter. Ang mundo ay nahaharap sa isang digmaan gamit ang kompyuter. Si Jehan Shuman ay isang programmer na nakatuklas kay Myron Aub. Si Myron Aub ay isang teknisyan na nakatuklas ng “graphitics”. Nagkaroon ng isang pagpupulong ang presidente, mga heneral at maging mga opisyal ng gobyerno kung paano magagamit ang “bagong tuklas” na kaalaman at tinawag nila itong “project number”. Bilang pagpapakita kung paano nagagamit ang “graphitics”, ipinamalas ni Myron Aub kung paano magmultiply gamit ang isang papel at lapis at hindi sa kompyuter. Matapos maipakita sa marami ang bagong tuklas, nagkaroon ng maraming mungkahi ang mga nakapanood. Nagmungkahi si General Weider, heneral na namumuno sa laban ng mundo sa ibang planeta. Ayon sa kanya, magagamit ang kaalaman ng “graphitics” upang magkaroon ng “man-missiled” kung saan ang tao ang magkokontrol ng missile upang matalo ang kalaban. Sa mungkahi ni Congressman Brant, nais niyang turuan ang mga tao ng “graphitics” upang makagawa ng mga makinarya para sa ikauunlad. Sa di kalayuan ay nakikinig si Myron Aub at habang nagpupulong ang mga opisyal, nagpakamatay si Myron gamit ang isang “protein-depolarizer”. Nagpapakita lamang ito ng masamang dulot ng pagsibol ng makabagong teknolohiya. Pinapakita sa katangian ni General Weilder ang kawalan ng pagpapahalaga sa buhay. Isa ito sa mga sumisibol na suliranin kung...
Words: 255 - Pages: 2
...TechPro™ Operation Manual Model ARH1 MYRON L COMPANY 10-02 (WEB) EG Instrument Illustration Reference Junction (under Glass Bulb) pH Sensor (User replaceable) Conductivity Cell (Built-in Electrodes) Temperature Sensor pH Glass Electrode pH Sensor Protective Cap User selectable temperature compensation ratios (Solution Selection) KCl NaCl 442 Units of Measurement Parameter LO BATT mS µS PPM PPT mS - millisiemens/cm (millimhos/cm) µS - microsiemens/cm (micromhos/cm) PPM - parts per million PPT - parts per thousand Conductivity Conductivity TDS TDS Icon for pH COND pH °C TDS Icons for either Conductivity or Total Dissolved Solids (TDS) COND TDS pH pH key Conductivity or TDS key: User selectable for either Conductivity or TDS (Switch Selectable) pH/CONDUCTIVITY METER ARH1 MYRON L COMPANY Wrist/neck strap slot (user supplied) For detailed explanations, see Table of Contents 1-12-99 1 FEATURES and SPECIFICATIONS • • • • • • • • • • • A. Features Superior resolution 3 1/2 digit LCD Conductivity/TDS accuracy of ±1% of full scale pH accuracy of ± .05 pH units All electrodes are internal for maximum protection Latest electrode cell technology Water resistant Autoranging Conductivity/TDS Easy Conductivity/TDS and pH calibration User selectable Conductivity/TDS modes 3 “User Selectable” solution conversions (tempcos) Temperature Accuracy of ±1° C/F 3 1/2 Digit LCD 7.7x2.7x2.5 in. 196x68x64 mm 11.2oz./320g ABS ABS 0.2 oz./5 ml 0.04...
Words: 460 - Pages: 2
