1. What types of stock-based compensation does the company offer? Briefly describe the different types of awards that are offered to company employees.

2. How does Nike estimate the risk-free rate, expected option life, and volatility for use in the Black-Scholes option pricing model? On a scale of 1 (little), 2 (some) or 3 (a lot), how much managerial judgement is employed in making estimates such as these? Why might this be a concern?

3. Using the option pricing worksheet posted on Canvas and Nikes assumptions, estimate the Black-Scholes weighted average fair value per share of the options granted in fiscal 2022. What is Nikes estimate? How does your estimate compare? (Please include a screenshot of your spreadsheet)

4. Assume that the options that Nike granted in fiscal 2022 are exercised at some future date when Nikes stock is worth $250 per share (a new TikTok trend causes the share price to sky rocket!). Under grant-date accounting, what is the cumulative amount of expense that Nike would charge against income for these options (hint: use the estimated weighted-average fair value per share for 2022 from the 10-K --- note: this is the number that you compared your calculation against in the previous question)? Under exercise-date accounting, what is the cumulative amount of expense that Nike would charge against income for these options? Which of these (grant date or exercise date accounting) is required by US GAAP? Which provides a more representationally faithful estimate of the amount of wealth transferred from existing shareholders to employees? Ignore related tax benefits.

Answer these questions using the Black-Scholes Option-Pricing Model with Dividends (for question 3), and also using Nike's financial statements for the year ended May 31, 2022.