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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs
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To: rkral who wrote (68)6/17/2002 4:25:46 AM
From: hueyoneRead Replies (1) of 786
 
Thank you for your further clarification. As I understand it, the Black Scholes model is an attempt to assign a present value estimate to the actual cost upon exercise---which is the difference between market price and strike price at date of exercise. I have never claimed that we should be deducting both the present value estimate of the value of the grant (SFAS 123 Black Scholes) as well as the difference between market and exercise price at time of exercise---if that is what you are implying when you ask me where the second cost should be "added".

From the professor: However, even without using cash to repurchase shares there is a foregone cash inflow for the excess of the market price of the stock over the exercise price on the date of exercise. In fact, it is roughly the present value of this excess that a valuation model such as the Black-Scholes model attempts to estimate when assigning a value to stock options on the date of grant.

More tomorrow.

Best, Huey
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