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.

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Answer 1

Question

Chapter 25, Problem 4M

Summary Introduction

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.

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Answer 2

Question

Chapter 25, Problem 4M

Summary Introduction

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.

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Answer 3

Question

Chapter 25, Problem 4M

Summary Introduction

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.

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Answer 4

Question

Chapter 25, Problem 4M

Summary Introduction

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.

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Answer 5

Chapter 25, Problem 4M

Summary Introduction

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.

Answer 6

Chapter 25, Problem 4M

Summary Introduction

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.

Answer 7

Chapter 25, Problem 4M

Summary Introduction

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.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 25.1 - Prob. 25.1ACQ Ch. 25.1 - Prob. 25.1BCQ Ch. 25.2 - Prob. 25.2ACQ Ch. 25.2 - Prob. 25.2BCQ Ch. 25.3 - Prob. 25.3ACQ Ch. 25.3 - Prob. 25.3BCQ Ch. 25.4 - Why do we say that the equity in a leveraged firm...Ch. 25.4 - Prob. 25.4BCQ Ch. 25.5 - Prob. 25.5ACQ Ch. 25.5 - Prob. 25.5BCQ

Solution Summary: The author explains that Person X joins Firm E, a chain of restaurants, and receives employee stock options. The company is relatively young and can expect that the total earnings will be reinvested into the company for the future

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Chapter 25 Solutions