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Travka [436]
3 years ago
9

On december 31, 2016, some of corrigan corporation's key executives were granted the option to buy 100,000 shares of the firm's

$5 par common stock at an option price of $15 per share. according to the black-scholes model, the total compensation expense associated with the options is $375,000. these options represent compensation for services provided over a four-year period beginning on january 1, 2017, and they become exercisable on that date. as of december 31, 2017, none of the executives had chosen to exercise their options. if corrigan uses the fair value method, how will the executives' stock options affect the firm's net income for 2017?
Business
1 answer:
Virty [35]3 years ago
7 0
<span>I believe that if the executives exercised their option to use their fair value method, it would lower the firm's net income for 2017, thereby lowering the overall value of the stock. As a private firm, they do not have to use the fair value method. The compensation expense will also be lower. It would also devalue the projection for the following year.</span>
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Keith_Richards [23]

Answer:

$259.34

Explanation:

the value of the stock can be determined using the two stage dividend discount model.

In the first stage, the present value would be determined using a discount rate of 18%.

In the second stage, the present value would be determined using a discount rate of 6%.

Values from the first and second stage would be added together to determine the value of the stock

First stage

Present value in year 1 = ($3.2 x 1.18) / 1.087 = $3.47

Present value in year 2 = ($3.2 x 1.18²) / 1.087² = $3.77

Present value in year 3 = ($3.2 x 1.18³) / 1.087³ = $4.09

Present value in year 4 = ($3.2 x 1.18^4) / 1.087^4 = $4.44

Second stage

($3.2 x 1.18^4 x 1.06) / (0.087 - 0.06) = 243.57

Value of the stock = $3.47 + $3.77 + $4.09 + $4.44 +  243.57 = $259.34

7 0
3 years ago
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The survey would have happened during the stage of idea screening

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The idea screening process involves comparing and contrasting  potential new  products in order to determine which of the ideas are a perfect fit for the business giving its  current resources, strengths , opportunities ,threats or limitations of the business.

At this stage of product development,the over-aching aim is to pick the products could be best invested that yield positive in a short while rather picking all available options that might drain the resources available and not yield commensurate returns.

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