A large public accounting firm, reporting findings of a survey on corporate directors’

compensation, remarked, “Since there are usually greater growth rates in smaller companies, share options offer directors a good chance at investment appreciation at no cost to the company.”

A share option has the following characteristic. Suppose one three-year share option is granted to a director at today’s share price of \($10.\) Then, at any time over the next three years, the director can buy one share from the company at \($10.\) If next year the share price rises to \($14,\) the director can exercise the option by paying \($10\) to the company and receiving one share. The share can then be sold in the market for \($14,\) thereby realizing a \($4\) gain.

Critically evaluate the quoted sentence. Do you agree or disagree with the statement and explain why.