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conceptSM_ch24 - in the best interests of the shareholders...

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CONCEPT QUESTIONS - CHAPTER 24 24.1 Why do companies issue options to executives if they cost the company more than they are worth to the executive? Why not just give cash and split the difference? Wouldn’t that make both the company and executive better off? One of the purposes to give stock options to executives (instead of cash) is to tie the performance of the firm’s share price with the compensation of the executives. In this way, the executive has an incentive to increase shareholder value, and act
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Unformatted text preview: in the best interests of the shareholders. 24.2O What are the two options that many businesses have? Most businesses have the option to abandon under bad conditions and the option to expand under good conditions. n Why does a strict NPV calculation typically understate the value of a firm or a project? Virtually all projects have embedded options, which are ignored in NPV calculations and likely lead to undervaluation....
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