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If you were in Jimmy's 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 rovided and make the a re riate ad'ustments for our Eresent value calculations. The cells in - need ad'iustments. 1. You would want it to at least get to $45. 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 'l, and the stock price is $60 at exercise, show the nancial statement effects entry at issuance of the options and at exercise. Balance Sheet Income Statement Cash Noncash _ UAW: Transaction Asset + Assets "' G Ital + Ca Ital Issue = Exercise UPLOAD THE EXCEL FILE WITH YOUR CALCULATIONS Excerpts from the Consolidated Balance Sheets of Moog, Inc. (dollars in thousands) 2'7 Sep 30 Sep 2008 2006 Common stock - par value $1 Class A Authorized 50,000,000 shares Issued 40,676,405 and outstanding 37,698,332 shares at September 27, 2008 40,676 Issued 25,147,785 and outstanding 22,910,728 shares at September 30, 2006 25,148 Class B - Authorized 10,000,000 shares Issued 7,934,184 and outstanding 4,112,746 shares at September 27, 2008 7,934 Issued 5,342,607 and outstanding 2,794,982 shares at September 30, 2006 5,343 Additional paid-in capital 280,903 198,593 Retained earnings 448,879 322,989 Treasury shares (Class A)3 (48,949) (48,192) Treasury Shares (Class B)b (5,095) (5,095) Accumulated other comprehensive income (loss) 7,566 (27,130) TOTAL SHAREHOLDERS EQUITY 731,914 471,655 a Class A Common stock in treasury: 2,978,073 shares at 27 Sep. 2008,: 2,237,057 shares at 30 Sep. 2006. 1' Class B Common stock in treasury: 3,821,438 shares at 27 Sep. 2008; 2,547,625 shares at 30 Sep. 2006. Additional Information Regarding Transactions in 2007 In the Management Discussion and Analysis section of Moog' s 10-K report for the 2007 scal year, Jimmy found the following information regarding transactions that affected the shareholders' equity section of Moog's balance sheet during Moog's 2007 scal year, as follows: 1. The Board of Directors of Moog approved a three-for-two stock split of its Class A and Class B common stock to shareholders of record on March 18, 2007, distributed April 1, 2007. This was effected in the form of a 50% stock distribution (dividend). During May and June 2007, the company purchased 112,199 Class A Shares on the open market at an average price of $29.70 per share (including trading costs). On July 5, 2007, employees purchased 147,017 Class A Shares from the company by exercising employee stock options. These shares had been previously purchased in the open market at an average price of $5.09 per share which was equal to the average exercise price5 of the options exercised. The fact that the exercise price of the options is equal to the purchase price is purely a coincidence and rarely occurs in practice. Between May and August 2007, shareholders elected to convert 11,545 Class B shares into Class A shares. Moog reported net income of $64.79 million for the year with an additional loss associated with foreign currency translation of $16.50 million and paid no dividends. Additional Information Regarding Transactions in 2008 Similarly, Jimmy was able to find information regarding some of the transactions which occurred during Moog' s 2008 fiscal year as follows: 1. On February 21, 2008, Moog completed the offering and sale of 2,875,000 shares of Class A common stock at a price of $31 per share. The net proceeds of $84.5 million were used to pay down outstanding credit facility borrowings. 2. In July 2008, employees purchased 342,695 Class A shares from the company by exercising employee stock options. These shares had been previously purchased by the company in the open market at an average price of $5.33 per share. 3. Moog reported net income of 3581.345 million for the year