Stock Options and Ethics Bristol-Myers Squibb is one of the largest pharmaceutical companies in the world. In 2002, the company granted executives options to purchase 40,112,732 shares of common stock. Suppose all shares were granted with an exercise price of $37.55 per share, which was the market price of the stock on the date the options were granted, and all options could be exercised any- time between 3 and 5 years from the grant date, provided that the executive still works for Bristol-Myers Squibb. Assume at the same time the stock options were issued Bristol-Myers Squibb also issued warrants with the same $37.55 exercise price that are exercisable any time in the next 5 years. The company received $12 for each such warrant.

1. How much expense was recorded at the issue of each stock option? 2. How much value was there to the executive for each stock option issued? 3. How much did it cost the firm for each stock option that was issued? 4. Might the fact that individual executives hold stock options affect their decisions about declaring dividends? Comment on the ethics of this influence. Collaborative Learning