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1、McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1Executive SummaryThis chapter extends the analysis of options contained in Chapter 22.We describe four types of options found in common corporate finance decisions.Executive stock optionsThe option to expand emb
2、edded in a start-up.The option in simple business contracts.The option to shut down and reopen a project.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-2Chapter Outline23.1 Executive Stock Options23.2 Valuing a Start Up23.3 More on the Binomial Model23.4 Shut
3、down and Reopening Decisions 23.5 Summary and ConclusionsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-323.1 Executive Stock OptionsExecutive Stock Options exist to align the interests of shareholders and managers.Executive Stock Options are call options(tec
4、hnically warrants)on the employers shares.InalienableTypical maturity is 10 years.Typical vesting period is 3 years.Most include implicit reset provision to preserve incentive compatibility.Executive Stock Options give executives an important tax break:grants of at-the-money options are not consider
5、ed taxable income.(Taxes are due if the option is exercised.)McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-4Valuing Executive CompensationFASB allows firms to record zero expense for grants of at-the-money executive stock options.However the economic value o
6、f a long-lived call option is enormous,especially given the propensity of firms to reset the exercise price after drops in the price of the stock.Due to the inalienability,the options are worth less to the executive than they cost the company.The executive can only exercise,not sell his options.Thus
7、 he can never capture the speculative valueonly the intrinsic value.This“dead weight loss”is overcome by the incentive compatibility for the grantor.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-5Top Stock Option GrantsCompanyCEOStock Option Award Citigroup,
8、Inc.Sanford Weill$351,319,000American ExpressHarvey Golub$134,102,000Cisco Systems,Inc.John Chambers$132,100,000Bank of AmericaHugh McColl Jr.$104,300,000Honeywell Inc.Michael Bosignore$121,496,000ALCOAPaul ONeill$96,353,000McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights
9、reserved.23-623.2 Valuing a Start-UpAn important option is the option to expand.Imagine a start-up firm,Campusteria,Inc.which plans to open private dining clubs on college campuses.The test market will be your campus,and if the concept proves successful,expansion will follow nationwide.Nationwide ex
10、pansion will occur in year four.The start-up cost of the test dining club is only$30,000(this covers leaseholder improvements and other expenses for a vacant restaurant near campus).McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-7Campusteria pro forma income
11、statementInvestmentYear 0Years 1-4Revenues$60,000Variable Costs($42,000)Fixed Costs($18,000)Depreciation($7,500)Pretax profit($7,500)Tax shield 34%$2,550Net Profit$4,950Cash Flow$30,000$2,550We plan to sell 25 meal plans at$200 per month with a 12-month contract.Variable costs are projected to be$3,
12、500 per month.Fixed costs(lease payment)are projected to be$1,500 per month.We can depreciate our capitalized leaseholder improvements.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-823.2 Valuing a Start-UpNote that while the Campusteria test site has a negat
13、ive NPV,we are close to our break-even level of sales.If we expand,we project opening 20 Capusterias in year four.The value of the project is in the option to expand.We will use the Black-Scholes option pricing model to value this optionMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,In
14、c.All rights reserved.23-923.2 Valuing a Start-Up with Black-ScholesThe Black-Scholes Model isWhereC0=the value of a European option at time t=0r=the risk-free interest rate.N(d)=Probability that a standardized,normally distributed,random variable will be less than or equal to d.The Black-Scholes Mo
15、del allows us to value options in the real world just as we have done in the 2-state world.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1023.2 Valuing a Start-Up with Black-ScholesWe need to find the value of a four-year call option on chain with an exercis
16、e price of$600,000=$30,00020The interest rate available is r=10%.The option maturity is four years.The volatility of the underlying asset is 30%per annum.The current value of the underlying assets is$110,418McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1123.
17、2 Valuing a Start-Up with Black-ScholesLets try our hand again at using the model.If you have a calculator handy,follow along.Then,First calculate d1 and d2McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1223.2 Valuing a Start-Up with Black-ScholesN(d1)=N(-1.8
18、544)=0.032N(d2)=N(-2.45)=0.007The option to expand,while valuable,is not as great as the negative NPV of opening the trial Campusteria.So we should not proceed.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-13The Option to Delay:ExampleConsider the above proj
19、ect,which can be undertaken in any of the next 4 years.The discount rate is 10 percent.The present value of the benefits at the time the project is launched remain constant at$25,000,but since costs are declining the NPV at the time of launch steadily rises.The best time to launch the project is in
20、year 2this schedule yields the highest NPV when judged today.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1423.3 More on the Binomial ModelThe binomial option pricing model is an alternative to the Black-Scholes option pricing modelespecially given the comp
21、utational efficiency of spreadsheets such as Excel.In some situations,it is a superior alternative.For example if you have path dependency in your option payoff,you must use the binomial option pricing model.Path dependency is when how you arrive at a price(the path you follow)for the underlying ass
22、et is important.One example of a path dependent security is a“no regret”call option where the exercise price is the lowest price of the stock during the option life.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-15Three Period Binomial Option Pricing ExampleT
23、here is no reason to stop with just two periods.Find the value of a three-period at-the-money call option written on a$25 stock that can go up or down 15 percent each period when the risk-free rate is 5 percent.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-1
24、6Three Period Binomial Process:Stock Prices$2528.7521.252/31/333.0624.442/31/318.062/31/315.352/31/338.022/31/320.772/31/328.10McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-17$2528.7521.252/31/315.352/31/338.0228.102/31/320.772/31/333.0624.442/31/318.062/31/
25、313.023.10009.251.9706.50 1.254.52Three Period Binomial Process:Call Option PricesMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-18Valuation of a Lookback OptionWhen the stock price falls due to the stock market as a whole falling,the board of directors tends
26、 to reset the exercise price of executive stock options.To see how this reset provision adds value,lets price that same three-period call option(exercise price initially$25)with a reset provision.Notice that the exercise price of the call will be the smallest value of the stock price depending upon
27、the path followed by the stock price to get there.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-19Three Period Binomial Process:Lookback Call Option Prices$2528.7521.2533.0624.4418.0624.4415.3520.7728.1020.7720.7728.1038.0228.10McGraw-Hill/IrwinCopyright 200
28、2 by The McGraw-Hill Companies,Inc.All rights reserved.23-20Three Period Binomial Process:Lookback Call Option Prices$2528.7521.2533.0624.4418.0615.3538.0220.7728.1028.1028.1024.4420.7720.7713.02$3.10$6.85$3.66 002.710McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserv
29、ed.23-21Three Period Binomial Process:Lookback Call Option Prices$2528.7521.2533.0624.4418.0615.3538.0220.7728.1028.1028.1024.4420.7720.7713.02$3.10$6.85$3.66 002.7109.252.334.351.72McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-22Three Period Binomial Proces
30、s:Lookback Call Option Prices$2528.7521.2533.0624.4418.0615.3538.0220.7728.1028.1028.1024.4420.7720.7713.02$3.10$6.85$3.66 002.7109.252.334.351.726.61 3.315.25McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-23Excel Applications of the BOPMThe BOPM is easily in
31、corporated into Excel spreadsheetsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-2423.4 Shutdown and Reopening DecisionsCan easily be seen as options.The“Woe is Me”gold mine is currently closed.The firm is publicly held and trades under the ticker WOE.The fir
32、m has no debt and has assets of around$30 million.The market capitalization is$240 millionWhat could possibly explain why a firm with$30 million in assets and a closed gold mine that is producing no cash flow at all has this kind of market capitalization?Options.This firm has them in spades.McGraw-H
33、ill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-25Discounted Cash Flows and OptionsWe can calculate the market value of a project as the sum of the NPV of the project without options and the value of the managerial options implicit in the project.A good example would
34、be comparing the desirability of a specialized machine versus a more versatile machine.If they both cost about the same and last the same amount of time the more versatile machine is more valuable because it comes with options.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All righ
35、ts reserved.23-26The Option to Abandon:ExampleSuppose that we are drilling an oil well.The drilling rig costs$300 today and in one year the well is either a success or a failure.The outcomes are equally likely.The discount rate is 10%.The PV of the successful payoff at time one is$575.The PV of the
36、unsuccessful payoff at time one is$0.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-27The Option to Abandon:Example Traditional NPV analysis would indicate rejection of the project.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights re
37、served.23-28The Option to Abandon:ExampleThe firm has two decisions to make:drill or not,abandon or stay.Do not drillDrillFailureSuccess:PV=$500Sell the rig;salvage value=$250 Sit on rig;stare at empty hole:PV=$0.Traditional NPV analysis overlooks the option to abandon.McGraw-Hill/IrwinCopyright 200
38、2 by The McGraw-Hill Companies,Inc.All rights reserved.23-29The Option to Abandon:Example When we include the value of the option to abandon,the drilling project should proceed:McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-30Valuation of the Option to Abando
39、nRecall that we can calculate the market value of a project as the sum of the NPV of the project without options and the value of the managerial options implicit in the project.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-31Enrons Inefficient PlantsIn 1999
40、Enron planned to open gas-fired power plants in Mississippi and Tennessee.These plants were expected to sit idle most of the year,and,when operated to produce electricity at a cost of at least 50 percent higher than the most efficient state-of-the-art facility.Enron was buying a put option on electr
41、icity.They can sell electricity when electricity prices spike.Typical price is around$40 per megawatt-hour,but occasionally the price is several thousand dollars.Having a plant that was only economic to operate a few weeks a year was a positive NPV investmentwhen you include the value of that option
42、.Brealey,Myers,and Marcus Fundamentals of Corporate Finance,3e.And“Exploiting Uncertainty:The“Real Options”Revolution in Decision Making”Business Week,June 7,1999McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.23-3223.5 Summary and ConclusionsOptions appear in a
43、variety of corporate settings.We describe four types of options found in common corporate finance decisions.Executive stock optionsThe option to expand embedded in a start-up.The option in simple business contracts.The option to shut down and reopen a project.We have the methodology to value them.1、
44、每一个成功者都有一个开始。勇于开始，才能找到成功的路。11月-2211月-22Tuesday,November 8,20222、成功源于不懈的努力，人生最大的敌人是自己怯懦。07:47:3907:47:3907:4711/8/2022 7:47:39 AM3、每天只看目标，别老想障碍。11月-2207:47:3907:47Nov-2208-Nov-224、宁愿辛苦一阵子，不要辛苦一辈子。07:47:3907:47:3907:47Tuesday,November 8,20225、积极向上的心态，是成功者的最基本要素。11月-2211月-2207:47:3907:47:39November 8,2
45、0226、生活总会给你另一个机会，这个机会叫明天。08十一月20227:47:39上午07:47:3911月-227、人生就像骑单车，想保持平衡就得往前走。十一月227:47上午11月-2207:47November 8,20228、业余生活要有意义，不要越轨。2022/11/87:47:3907:47:3908 November 20229、我们必须在失败中寻找胜利，在绝望中寻求希望。7:47:39上午7:47上午07:47:3911月-2210、一个人的梦想也许不值钱，但一个人的努力很值钱。11/8/2022 7:47:39 AM07:47:3908-11月-2211、在真实的生命里，每桩伟业都由信心开始，并由信心跨出第一步。11/8/2022 7:47 AM11/8/2022 7:47 AM11月-2211月-22谢谢大家谢谢大家