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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (68965)	10/12/1999 12:50:00 AM
From: Don Lloyd	Read Replies (2) \| Respond to of 132070

Wayne - (...I never considered the possibility that the company could "not" sell the 1000-1st diamond if it wanted too. I assumed there was a market for it. (this was a key assumption in the difference of our answers) I never considered the possibility that the company might only sell 999 diamonds and use last one for compensation. I understand the Austrian answer, but personally I would still value the company my way. The reason I feel that way is that I would assume that the extra diamond COULD be sold if the company desired, even if it required some incremental cost or was done at a lower price. That would have to be the case if the executive who received it could theoretically sell it. If the company could theoretically have sold 1001 diamonds, it could have achieved a higher profit if it did not give the diamond to the executive...) I was assuming that 1000 was a compromise number, playing off current profit vs future sales, and not overloading the market. I wouldn't expect it to be a sharp number and I also expected that the president would only sell into a strong market. The actual mining effort would continually be adding to inventory and would modulate mining vs maintainence vs vacations vs overtime depending on sales and inventory levels. The key point would be that a range of market prices for diamonds from $500K to $2M would affect the valuation of the reserves and thereby the company, but it would have almost no effect on the cost of the executive compensation to the company, except that the rate of tradeoff of diamonds vs salary reduction would change to meet the executive labor market competition. When a company grants options or shares, there is really no cost to the company as a whole, but rather a reduction in shareholder ownership share. Adjustment of EPS should, IMO, be a more aggressive adjustment of 'S', not 'E'. Every potential exercised share should be counted and be tracked over time. I believe that currently some out of the money options are not counted in diluted shares, but I'm not sure. In any case, what usually happens is the OTM grants either get re-priced or added to with lower grants. If they were all counted, there would be more incentive to cancel the OTM grants at the time of re-price or addition. If a company historically trades at a PE of 'x', I have no problem with a company buying back stock at a PE of 'x/2'. However, this is likely to be rare. Regards, Don