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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: SouthFloridaGuy who wrote (63571)	4/16/2003 6:18:16 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 77400

LIG, Econ 101 teaches students that there is an opportunity cost for an expenditure - well that is exactly what options are - because the options could have been used for an alternative. A true economic opportunity cost requires that the resource used have an economic scarcity value and that the precluded alternative represent a net benefit. Both stock and options fail both tests. Since a company can create new stock out of thin air with one share fully equivalent to another without effective limit, stock, and by logical extension, options, have no economic scarcity value to the company. No matter how many shares it gives away to its employees, it can still sell an unlimited number of new shares on the market, and vice versa. If stock WERE scarce, it still wouldn't be an opportunity cost because selling stock on the market has no NET current benefit to shareholders. The dilution in ownership that existing shareholders suffer from a market stock sale precisely offsets their ownership share of the sale proceeds. Alternately, from the narrower point of view of the company itself, if the sale of stock were said to produce a net benefit to the company of the sale proceeds, then the stock given up in exchange must have a value of zero. This is consistent with the stock having no scarcity value to the company, but giving up something of zero value cannot logically be called an expense. Regards, Don