When Employee Stock Options Are Issued They Are Usually Priced

question 396

Multiple Choice

When employee stock options are issued they are usually priced:

• A) At 10% above the market value of stock.
• B) At an intrinsic value of $10.
• C) At the money.
• D) Such that they will not go "underwater".
• E) So that they can be exercised immediately at a profit.

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Definitions:

Forecasting Risk

The potential for a significant difference between forecasted and actual results due to assumptions or model inaccuracies.

Projected Fixed Costs

Estimated costs that do not vary with the volume of output or sales, typically including expenses like rent, salaries, and insurance.

Contribution Margin

The difference between sales revenue and variable costs, illustrating how much revenue contributes towards covering fixed costs and generating profit.

Accounting Break-Even

Represents the sales amount at which a business covers its operating costs without making a profit or a loss.