Suppose that a firm offers a 3-year compensation option that vests immediately. An employee who resigns has two years to decide whether to exercise the option. Compute annual compensation option expense using the stock price tree in the example in Appendix 16.A. Verify that the present value of the option deductions is $28.15.
Answer to relevant QuestionsThere are four debt issues with different priorities, each promising $30 at maturity. a. Compute the yield on each debt issue assuming that all four mature in 1 year, 2 years, 5 years, or 10 years. b. Assuming that each debt ...Nowsuppose the firm finances the project by issuing debt that has lower priority than existing debt. How much must a $1, $10, or $25 project be worth if the shareholders are willing to fund it? Consider the oil project with a single barrel, in which S = $15, r = 5%, δ = 4%, and X = $13.60. Suppose that, in addition, the land can be sold for the residual value of R = $1 after the barrel of oil is extracted. What is ...Repeat Problem 17.18 assuming that the volatility of gold is 20% and that once opened, the mine can be costlessly shut down once, and then costlessly reopened once. What is the value of the mine? What are the prices at which ...What is Pr(St < $98) for t = 1? How does this probability change when you change t?
Post your question