16-4 Cisco Systems (HW 2)

16-4 Cisco Systems (HW 2) - Acct 202 HW2 Due: March 1st,...

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Acct 202 HW2 Due: March 1st, 2010 Case: Cisco Systems Employee Stock Options and Earnings per Share Read article “Tech companies’ liberal use of stock options could swamp investors, drain firms’ resources,” Wall Street Journal, 7/28/00. Obtain Cisco Systems 10K or Annual Report for the fiscal year ending July 29, 2000. These filings are readily available at the http://www.sec.gov website or directly from the Cisco Systems website at: http://www.cisco.com/ 1. Assume the following: On March 31, 2000, 4 months before Cisco prepares its fi- nancial statements, Cisco sells some of its short-term assets and repurchases 60 mil- lion common shares at $55 per share. Also assume that Net Income is $120 million lower because of lost income from these short-term assets. Further, assume that in- stead of $1.132 billion in deferred tax liabilities, Cisco has $1.132 billion in convert- ible debt securities outstanding at 7/29/00, that these securities were issued at par value, and that these securities have been outstanding since 1998. The convertible debt carries a 10% annual coupon and can be converted into 100 million shares of common stock. Assume the tax rate is 35%. Note from footnote 2, that stock options are the only dilutive security that affects Cisco’s diluted EPS. Given these assump- tions, what would diluted earnings-per-share be for fiscal year ending 7/29/00? 2. How much stock option expense was recognized by Cisco in the fiscal year ending 7/29/00? Does Cisco use the intrinsic value method or the fair value method to ac-
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This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

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16-4 Cisco Systems (HW 2) - Acct 202 HW2 Due: March 1st,...

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