PROBLEM # 10: Jimmy Fu and Moog Corporation (25 points)

If you were in Jimmys shoes and are considering taking a job at Moog, how would you assess the following stock option grant? The strike and stock price are $30, volatility is 40%, the riskless rate is 1.5%, the vesting period is 4 years, the term is 10 years and the expected life is 5 years.

What price would you like to see the stock price reach at the minimum after you are vested to make the stock options worth considering? PLEASE SHOW YOUR CALUCLATIONS IN EXCEL. Please use the EXCEL Sheet provided and make the appropriate adjustments for your present value calculations. The cells in GREEN need adjustments.

You would want it to at least get to? ____

2. Discuss the implications if the stock price is $60 when your options vest. Consider the strike price, option price at grant and stock price at vesting.

3. If Jimmy get 1000 options, use the same criteria as in 1, and the stock price is $60 at exercise, show the financial statement effects entry at issuance of the options and at exercise.

Balance Sheet

Income Statement

Transaction

Cash Asset

+

Noncash Assets

=

Liabil- ities

+

Contrib. Capital

+

Earned Capital

Rev-enues

Expen-ses

=

Net Income

Issue

=

=

Exercise

=

=