(BQ) Part 2 book "Fundamentals of corporate finance" has contents: Options and corporate finance, cost of capital, cost of capital; financial leverage and capital structure policy, dividends and dividend policy, credit and inventory management,.and other contents. | For many workers, from senior management on Employee stock options are just one kind of option. down, employee stock options have become a very This chapter introduces you to options and explains important part of their overall compensation. In 2005, their features and what determines their value. The companies began to record an explicit expense for chapter also shows you that options show up in many employee stock options on their income statements, places in corporate finance. In fact, once you know which allows us to see how much employee stock what to look for, they show up just about everywhere, options cost. For example, in 2005, Dell Computer so understand- expensed about $ billion for employee stock ing how they options, which works out to about $17,000 per work is essential. employee. In the same year, search engine provider Visit us at DIGITAL STUDY TOOLS • Self-Study Software • Multiple-Choice Quizzes • Flashcards for Testing and Key Terms Google expensed about $200 million worth of employee stock options, which amounts to about $35,000 per employee. Capitaland Return P A R T 4 Risk Budgeting 5 14 OPTIONS AND CORPORATE FINANCE Options are a part of everyday life. “Keep your options open” is sound business advice, and “We’re out of options” is a sure sign of trouble. In finance, an option is an arrangement that gives its owner the right to buy or sell an asset at a fixed price any time on or before a given date. The most familiar options are stock options. These are options to buy and sell shares of common stock, and we will discuss them in some detail in the following pages. Of course, stock options are not the only options. In fact, at the root of it, many different kinds of financial decisions amount to the evaluation of options. For example, we will show how understanding options adds several important details to the NPV analysis we have discussed in earlier chapters. Also, virtually .
