Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc. In
Question:
Jared Lazarus has just been named the new chief executive officer of BluBell Fitness Centers, Inc. In addition to an annual salary of $425,000, his 3-year contract states that his compensation will include 25,000 at-the-money European call options on the company’s stock that expire in three years. The current stock price is $47 per share and the standard deviation of the returns on the firm’s stock is 52 percent. The company does not pay a dividend. Treasury bills that mature in three years yield a continuously compounded interest rate of 5 percent. Assume that the annual salary payments occur at the end of the year and that these cash flows should be discounted at a rate of 7 percent. Using the Black-Scholes model to calculate the value of the stock options, determine the total value of the compensation package on the date the contract is signed.
Step by Step Answer:
The total compensation package consists of an annual salary in addition to 25000 atthemoney stock op...View the full answer
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
Students also viewed these Business questions
-
A firm does not pay a dividend. It is expected to pay its first dividend of $0.20 per share in three years. This dividend will grow at 11 percent indefinitely. Using a 12 percent discount rate,...
-
A firm does not pay a dividend. It is expected to pay its first dividend of $0.25 per share in two years. This dividend will grow at 10 percent indefinitely. Using an 11.5 percent discount rate,...
-
Jessica Lazarus has just been named the new CEO of BluBell Fitness Centers Inc. In addition to an annual salary of $375,000, her three-year contract states that her compensation will include 15,000...
-
__________ is the process that occurs when a job applicant does research on an organization and concludes there is enough of a fit between themselves and a job opening to warrant submitting their...
-
Ammonium nitrate (NH4NO3) is one of the most important nitrogen-containing fertilizers. Its purity can be analyzed by titrating a solution of NH4NO3 with a standard NaOH solution. In one experiment a...
-
A wire carries a 4 A current. What is the current in a second wire that delivers twice as much charge in half the time?
-
Briefly discuss the strengths and limitations associated with this approach and the specific design . Develop a hypothetical research scenario that would necessitate the use of the Action Research...
-
You have $1,000,000 worth of equipment at the job site and wish to minimize your risk of direct property damage by taking out an insurance policy. The insurance company provides you with its...
-
Defend the following statement: Data and database administration are even more important in the decentralized IS environment than in the centralized one
-
You should assume that todays date is 15 February 2019. You are a trainee chartered certified accountant dealing with the tax affairs of Dembe and her husband Kato. Personal pension contribution...
-
Gary Levin is the chief executive officer of Mountainbrook Trading Company. The board of directors has just granted Mr. Levin 35,000 at-the-money European call options on the companys stock, which is...
-
Gasworks, Inc., has been approached to sell up to 5 million gallons of gasoline in three months at a price of $1.95 per gallon. Gasoline is currently selling on the wholesale market at $1.76 per...
-
Why are SERPVAL instruments used?
-
Positrons and beta particles have (1) the same charge and the same mass (2) the same charge and different masses (3) different charges and the same mass (4) different charges and different masses
-
In the circuit shown, the current in the R3 resistor is 13 = 5.2 A, and the current in the R resistor is l = 1.0 A, find the current 1. I E1- A. 6.2 A B. 5.2 A C. 2.2 A D. 8.2 A E. 4.2 A R=52 MM R=...
-
An ion will spontaneously move to an area where it is less concentrated. Ofrom an area of high enthalpy to an area of low enthalpy. wherever a protein pushes it. O toward ions with the same charge
-
sodium bicarbonate is a product of neutralization reaction between sodium hydroxide and carbonic acid. Should not we classify this compound as a salt? or a base?
-
QUESTION 5 (a) Define the term Magnification Factor (MF) and explain why it is important to determine the Magnification Factor (MF) of a system. [CO1/PO1/C2] (5 marks) (b) Figure Q5(a) shows a system...
-
Jabari Johnson is considering acquiring an automobile at the beginning of 2015 that he will use 100% of the time as a taxi. The purchase price of the automobile is $35,000. Johnson has heard of cost...
-
Bobbie Singh provides writing services for small businesses. He blogs for companies that need professionally written content. His business records at November 15, 2023, are shown below: During the...
-
You have just purchased a new warehouse. To finance the purchase, youve arranged for a 30-year mortgage loan for 80 percent of the $3.9 million purchase price. The monthly payment on this loan will...
-
Consider a firm with a contract to sell an asset for $150,000 three years from now. The asset costs $102,000 to produce today. Given a relevant discount rate of 11 percent per year, will the firm...
-
What is the value today of $3,500 per year, at a discount rate of 7.6 percent, if the first payment is received 7 years from now and the last payment is received 30 years from now?
-
Considering the financial system requirement, it was decided that company will use MYOB to handle company's finances. Write an email to the manager (trainer/assessor) requesting the equipment,...
-
Positioning Using the options below, create a positioning statement that accurately communicates the product's place in the market. As you create the positioning statement, there are a few things you...
-
What non-financial considerations do you think are necessary 1 Quality control issues 2 Inherent issues of the location where the 3rd party might be I 3 Language and cultural barriers 4 Finding the...
Study smarter with the SolutionInn App