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To: rkral who wrote (148)	7/31/2002 11:28:50 PM
From: Exacctnt	Respond to of 786

Glad someone posted something about the Treasury Stock Method. It came at a convenient time as I was making a point about its use to a master FUD spreader on the "How high will Microsoft fly" thread. This slippery weasel is trying to say that FASB 123 overrides Treasury Stock method with a "Fair value" method. Message 17820432 Follow the message to which I'm responding to get the drift.

To: rkral who wrote (148)	8/1/2002 9:52:47 AM
From: Biomaven	Respond to of 786

Yes, Cook's method basically corresponds to FAS 128's Treasury Stock Method, except in 128 we are talking about an assumed exercise and so we don't know P (stock price on exercise date). FAS 128 uses the average price for the quarter as an estimate of P. (The old Fully Diluted used the higher of average and ending prices). I think part of the confusion here about the Treasury Stock Method is that the word "dilution" is used in different ways. The naive approach views any issuance of securities as "dilutive" no matter what the price of issuance, because an original holder now has a smaller percentage ownership in the company. The accounting approach focuses on changes in equity per share (look at an IPO prospectus and you'll see language about the new shareholders' investment being diluted because they are buying at a much higher price than the original shareholders and the current equity value per share. The economics approach (which is that taken by FAS 128) focuses on change in value per share, and assumes issuance of shares at the current market value is non-dilutive of existing shareholders. Peter