Each tranche has the same exercise price— the market price of the stock on the grant date, or $ 23 on January 1, 2010. Explain why the option fair value increases with the vesting date.

This paper circulates around the core theme of Each tranche has the same exercise price— the market price of the stock on the grant date, or $ 23 on January 1, 2010. Explain why the option fair value increases with the vesting date. together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.

Starbucks
Corp., the passionate purveyors of coffee and everything else that goes with a
full and rewarding coffeehouse experience, included the following table in its
2009 annual report:

Total
stock based compensation and ESPP expense recognized in the consolidated
financial statements

Starbucks maintains several share- based
compensation plans that permit the company to grant employee stock options,
restricted stock, and restricted stock “units” or RSUs. Starbucks also has an
employee stock purchase plan (“ESPP”) that allows participating employees to
buy shares at a discounted price. At some companies, the discount can be as
much as 15% lower than the prevailing market price. Stock options to purchase
Starbucks’ common shares are granted at an exercise price equal to the market
price of the stock on the date of grant. Most options become exercisable in
four equal installments beginning one year from the date of the grant and
expire 10 years from the date of grant. Suppose Starbucks issues 100,000
employee stock options on January 1, 2010, and that one-fourth of the options
vest in each of the next four years, beginning on December 31, 2010. For
financial reporting purposes, the company elects to separate the total award
into four groups (or tranches) according to the year in which each vests.
Starbucks then measures the compensation cost for each vesting date tranche as
if it was a separate award. The following table provides details about each
vesting tranche:

Requirements

Prepare
a letter to the President of Starbucks to answer the following questions.

1. Each
   tranche has the same exercise price— the market price of the stock on the
   grant date, or $ 23 on January 1, 2010. Explain why the option fair value
   increases with the vesting date.