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To: Petz who wrote (155662)	4/11/2005 7:30:50 PM
From: brushwud	Respond to of 275872

So will the options cost part of earnings also be applied to book value? Seems like it shouldn't be, since it is a non-cash charge. Seems to me that maybe it should be, like depreciation which is also a non-cash charge (in the year that it's taken). Otherwise a company that was neither making nor losing money could see its book value decline to 0 as, year after year, they issue options that eventually expire worthless. Sort of a corporate Weimar Republic. Does the money from option exercises shows up as "additional paid-in capital?" Abso-fuddy-lutely, except if the shares have par value, then that part doesn't.

To: Petz who wrote (155662)	4/11/2005 11:48:24 PM
From: Biomaven	Read Replies (1) \| Respond to of 275872

So will the options cost part of earnings also be applied to book value? It's treated as a compensation expense like any other. Pay an employee $100 in cash, $100 in stock, $100 in options (based on the Fair Value of the options at grant date) - it's basically treated the same way. The options case is somewhat more complicated because the company gets some cash back when (if) the employee exercises, and the company's ultimate tax benefit may end up bigger or smaller than the initial estimate. Incidentally we ended up springing for a new HP Opteron workstation to run our regression and Monte Carlo simulations on - too bad we couldn't wait for the dual core, but we will likely upgrade when it is available. The statistics software we use (SAS) charges big bucks extra for the dual chip license (like an extra $6k) but I think they can't do anything about the dual core. Right now they claim no plans for a 64-bit Windows version, but I'm betting they will change their minds quickly. (They have a 64-bit Itanium version). Peter