
Case synopsis:
Person X has joined in the management position with Firm E, a chain of restaurant, which has gone public in the previous year. One issue that Person X was dealing is that the restaurant businesses are very risky. However, he found that it was not as risky as it was thought. At Person X’s interview, the benefits mentioned to him are the employee stock options.
After signing the contract of employment, he received options with a strike price for few numbers of shares. This option has a vesting period for 3 years. The employee stock options follows Continent E style put for the first 3 years and then it follows the put-style of Country A. The trading price of Firm E is $32.47 for one share. No market trading options are available on the company’s stock.
As the company has been traded only for a year, Person X can utilize the historical return to project the standard deviation on the stock’s return.
Characters in the case:
- Person X
- Firm E
Adequate information:
- Person X does not expect any dividend as the firm is relatively young and can expect that the total earnings will be reinvested into the company for the future.
To discuss: The reason for thinking that the employee stock options often have a vesting provisions and the reason for the option being exercised shortly after the employee leaves the company.

Want to see the full answer?
Check out a sample textbook solution
Chapter 25 Solutions
Fundamentals of Corporate Finance
- Lonnie is considering an investment in the Cat Food Industries. The $10,000 par value bonds have a quoted annual interest rate of 12 percent and the interest is paid semiannually. The yield to maturity on the bonds is 14 percent annual interest. There are seven years to maturity. Compute the price of the bonds based on semiannual analysis.arrow_forwardNeed solution this wuarrow_forwardneed assarrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning


