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Why companies offer stock options.

a)Why do companies offer stock options? Should stock option compensation be included as an expense when calculating an organization's net income? Explain why or why not. If so, how should the amount of expense be calculated?

b) What is the purpose of a stock split? What are some benefits of a stock split for a company? What are some benefits for an investor? What is the effect to the market value of the stock?

c)What are the differences between basic and diluted earnings per share? What are the differences between the numerator and the denominator in the basic and diluted earnings per share calculations? As an investor, do you evaluate a company as a potential investment using basic or diluted earnings per share? Explain why.

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a - Companies offer stock options as a way to improve their total compensation structure. When companies can begin to acquire stock options, it increases the retention rate at the company because the employees have an added incentive to stay. It also encourages employees to continue raising their productivity because the higher the company's stock, the more it is worth for the employee to invest in stock options. Stock option accounting is a very, very controversial area. Stock option expense should be included as an expense against net income. The main reason is because other forms of compensation are included, like benefits, bonuses, and other benefits offered to the company. The stock options are no different -- by including them, the company is taking advantage of the associated expense, just as they would with any other employee benefit. It should be recorded using the fair market value at the time the stock option is granted. One of the main ...

Solution Summary

a)Why do companies offer stock options? Should stock option compensation be included as an expense when calculating an organization's net income? Explain why or why not. If so, how should the amount of expense be calculated?

b) What is the purpose of a stock split? What are some benefits of a stock split for a company? What are some benefits for an investor? What is the effect to the market value of the stock?

c)What are the differences between basic and diluted earnings per share? What are the differences between the numerator and the denominator in the basic and diluted earnings per share calculations? As an investor, do you evaluate a company as a potential investment using basic or diluted earnings per share? Explain why.

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