Question
Interpreting Disclosure on Employee Stock Options GIVENS: Assume Intel Corporation reported the following in its 2008 10-K report. Share-Based Compensation Effective January 1, 2006, we
Interpreting Disclosure on Employee Stock Options
GIVENS:
Assume Intel Corporation reported the following in its 2008 10-K report. Share-Based Compensation Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R) . . . Share-based compensation recognized in 2008 was $852 million ($952 million in 2007 and $1,375 million in 2006). We use the Black-Scholes option pricing model to estimate the fair value of options granted under our equity incentive plans and rights to acquire common stock granted under our stock purchase plan. We based the weighted average estimated values of employee stock option grants and rights granted under the stock purchase plan, as well as the weighted average assumptions used in calculating these values, on estimates at the date of grant, as follows:
Stock Options | 2008 | 2007 | 2006 |
---|---|---|---|
Estimated fair values | $ 5.74 | $ 5.79 | $ 5.21 |
Expected life (in years) | 5.0 | 5.0 | 4.9 |
Risk-free interest rate | 3.0% | 4.5% | 4.9% |
Volatility | 37% | 26% | 27% |
Dividend yield | 2.7% | 2.0% | 2.0% |
Additional information with respect to stock option activity is as follows:
(In Millions, Except Per Share Amounts) | Number of Shares | Weighted Average Exercise Price |
---|---|---|
December 31, 2005 | 899.9 | $26.71 |
Grants | 52.3 | $20.04 |
Exercises | (47.3) | $12.83 |
Cancellations and forfeitures | (65.4) | $28.07 |
December 30, 2006 | 839.5 | $26.98 |
Grants | 24.6 | $22.63 |
Exercises | (132.8) | $19.78 |
Cancellations and forfeitures | (65.4) | $31.97 |
December 29, 2007 | 665.9 | $27.76 |
Grants | 27.9 | $21.81 |
Exercises | (38.6) | $19.42 |
Cancellations and forfeitures | (42.8) | $31.14 |
Expirations | (2.4) | $25.84 |
December 27, 2008 | 610.0 | $27.79 |
REQUIRED:
(d) What was the intrinsic value per share of the options exercised in 2008? (Hint: Assume that Intel grants options at-the-money.) $Answer per share
If employees who exercised options in 2008 immediately sold them, what "profit" did they make from the shares? (Round your answer to one decimal place.) Answer ($ million)
(e) The tax benefit that Intel will receive on the options exercised is computed based on the intrinsic value of the options exercised. Estimate Intel's tax benefit from the 2008 option exercises assuming a tax rate of 34.7%. (Round your answer to one decimal place.) Answer ($ million)
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