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Technology Stocks : Cisco Systems, Inc. (CSCO)

CSCO 77.78

+1.2%

Dec 3 3:59 PM EST

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To: Stock Farmer who wrote (59756)	6/9/2002 4:20:24 PM
From: hueyone	Read Replies (1) of 77400

John: I agree with most of your thinking in the post below and believe it would be extremely helpful if the treatment of stock option compensation for the IRS and shareholders was the same. I believe this would preclude Black Scholes estimates. Nevertheless, I would like to understand Black Scholes estimates better. Certainly there must be some useful information contained in the Black Scholes calculations. It turns out that shareholders lose the exact amount n * (P-S) where n is the number of options exercised, P is the market price at exercise, and S is the strike price of the options. This is equal to the cost of dilution summed over all future expected income streams. I agree with your formula regarding what shareholders lose, but you lose me when you say it is equal to the exact cost of dilution. When I think of dilution, I think of taking net income and dividing it by a greater amount of shares than we divided by previously, which doesn't take into account strike price, market price at exercise, or any of the items you mentioned. What am I missing here? Best, Huey

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