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...
-
When a subsystems goals are inconsistent with the goals of another subsystem, or with the system as a whole, it is called a. Goal conflict. b. Goal congruence. c. Both definitions are wrong.
-
You plan to investigate the variation of taxi-in times for flights that have landed in Los Angeles. Name at least two measures of variation for those data.
-
Computer Village sells computer equipment and home office furniture. Currently the furniture product line takes up approximately 50 percent of the companys retail floor space. The president of...
-
Problem 4. Consider the following reaction in which a species a approaches from-co and crosses an energy barrier of height um, at x = 0 and then falls in the potential well at b. Let the left side...
-
The Rubber Duck Brewing Company is a new microbrewery. Rubber Ducks brewing process converts beer raw ingredientsmalt extract, malted grain, adjuncts (rice or corn), hops, yeast, and waterinto brewed...
-
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...
-
Define current liabilities.
-
8. Researchers study the effect of distracted driving on driving behavior. Driving behavior is measured by the number of mistakes recorded on a simulator. There are 36 participants who are randomly...
-
A software used by engineers uses a CheckupRecord class to record equipment checkup information. For simplicity, only equipment id, last checkup date and relevant methods of this class are shown...
-
Histogram of Top Words Find the top frequently used words in the book of "Sense and Sensibility". The book is in the sense_andsensibility.txt file. The words should not be case sensitive, meaning...
-
The Maclaurin series expansion for cos x is + 6! 8! cos x = 1 - + 2 4! Starting with the simplest version, cos x = 1, add terms one at a time to estimate cos(7/6). After each new term is added,...
-
The large cabinets weigh 40 pounds, and the small cabinets weight 25 pounds. To optimize the load, the total load weight should be 1850 pounds from a total of 65 cabinets. How many of each size of...
-
SunRise Inc. and SunSet Inc. have the following operating data: .................................SunRise Inc. ......................... SunRise Inc. Sales ........................ $3,125.000...
-
A line l passes through the points with coordinates (0, 5) and (6, 7). a. Find the gradient of the line. b. Find an equation of the line in the form ax + by + c = 0.
-
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?
-
What strategies can be employed to cultivate inclusive and participatory forms of authority that empower marginalized communities and foster social cohesion in pluralistic societies?
-
Kaman Company purchased a building and land with a fair value of $650,000 (building, $400,000 and land, $250,000) on January 1, 2025. Kaman Company signed a 20-year, 8% mortgage payable. Kaman...
-
to questi A container has a large cylindrical lower part with a long thin cylindrical neck open at the top. The lower part of the container holds 16.8 m of water and the surface area of the bottom of...
Study smarter with the SolutionInn App