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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Pirah Naman who wrote (43792)6/22/2001 1:33:56 AM
From: hueyone   of 54805
 
The problem, however, is that the magnitudes of these cash flows are dependent upon the pricing of the stock. In other words, the value becomes dependent upon the price . If nothing else, this illustrates the circular nature of the entire employee options game.

Exactly. Assigning a net present value to the cash flows involved with different parts of the business makes a great deal of sense.....but how in the world are we going to predict the cash flows from stock options? We will have to predict how many options the board will grant, the strike price, the price movement of the stock and the market price when all those options are exercised. So now we are in a situation, as you said, where we have to predict the price movement of the stock to determine the economic value of the stock. But if we can predict the price movement of the stock we no longer care about the economic value of the stock.<ggg>

Edit: Just saw Ardethan's response and agree.
Best, Huey
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