Jason Johnson, CFA, is a principal of a large private equity firm in New York. One of the associates in his firm has identified a potential investment opportunity for the firm. Gasline, Inc. is a major producer of pipeline used in the production of natural gas in the Southwest United States. Last year, Gasline had approximately $150 million in sales, and sales are expected to increase as a result of increasing demand for their product. The company was founded over twenty-five years ago, and has been publically traded for the last ten years. The founder of the company, along with other members of the family, holds the majority of the common stock, and the group is amenable to liquidating their collective position at this time. Johnson’s associate believes there is significant opportunity in the industry, based upon new technology that allows for the extraction of natural gas from locations and depths that previously were too cost-prohibitive. This new technology should tr
A. $62,500.
B. $25,000.
C. $100,000
D. $0.
Jason Johnson, CFA, is a principal of a large private equity firm in New York. One of the associates in his firm has identified a potential investment opportunity for the firm. Gasline, Inc. is a major producer of pipeline used in the production of natural gas in the Southwest United States. Last year, Gasline had approximately $150 million in sales, and sales are expected to increase as a result of increasing demand for their product. The company was founded over twenty-five years ago, and has been publically traded for the last ten years. The founder of the company, along with other members of the family, holds the majority of the common stock, and the group is amenable to liquidating their collective position at this time. Johnson’s associate believes there is significant opportunity in the industry, based upon new technology that allows for the extraction of natural gas from locations and depths that previously were too cost-prohibitive. This new technology should tr
A. In compliance because a Monte Carlo simulation is an acceptable method of valuing options in the absence of a market-based instrument.
B. Not in compliance because the fair value must be established by using the Black-Scholes option pricing model.
C. Not in compliance because the options had no intrinsic value as of the grant date.
D. In compliance because the firm can elect to use either the intrinsic value model or the fair value model in the valuation of stock option plans.
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