You have just completed a valuation of Walther Corporation. You now realize that

Question

You have just completed a valuation of Walther Corporation. You now realize that you did not consider Walther’s employee stock options in the valuation. You ignored both the outstanding options as of the valuation date and the expected granting of additional options in the future. The rest of your valuation, however, is correct. It shows Walther’s common equity is worth $1 billion.

You have determined that as of the valuation date, the present value of Walther’s future option grants, net of the appropriate tax benefits, is $100 million. The following table shows the value of Walther’s outstanding employee stock options, net of the appropriate tax benefits, as of the valuation date, assuming various values for Walther’s common equity. For example, if common equity is worth $1.2 billion, the ESOs are worth $173.5 million.

Indicate between which two values of common equity in the preceding chart that Walther’s common equity falls.

The following information pertains to problems 5 through 7.

Enron Corporation filed for protection under Chapter 11 of the U.S. Bankruptcy Code in December 2001. Just a year earlier, at the end of 2000, its shares traded for $83.125. At that time, Enron had nearly 100 million ESOs outstanding, most of them substantially in the money.

The following table was adapted from Enron’s 2000 annual report.

($ Millions) Outstanding ESOs (net of tax) Common Equity $1,200 $ 173.5 1,150 1,100 1,050 1,000 950 900 850 800 750 700 165.0 156.6 148.1 139.8 131.4 123.1 114.8 106.6 98.5 90.4

Explanation / Answer

The present value of Walther’s future option grants, net of the appropriate tax benefits, is $100 million.The value of outstanding options as of the valuation date net of the appropriate tax benefits is given in the table its not Walther’s future option grants ,the effect of both should be considered before getting final equity value which is common equity net of both these options current and future.The  present value of Walther’s future option grants shall not have any effect on the value of common equity,and ESOPs,infact the final adjustment to equity value shall change.Thus common equity remains at $1000 millions. Between 950 and 1050$ millions of common equity in the preceding chart is the Walther’s common equity falls which is $1000 millions ,

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