Zelnor, Inc., is an all-equity firm with 120 million shares outstanding currently trading for $ 12.27...
Zelnor, Inc., is an all-equity firm with 120 million shares outstanding currently trading for $ 12.27 per share. Suppose Zelnor decides to grant a total of 12 million new shares to employees as part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything. Assume perfect capital markets.
a. If the new compensation plan has no effect on the value of Zelnor's assets, what will be the share price of the stock once this plan is implemented?
b. What is the cost of this plan for Zelnor investors? Why is issuing equity costly in this case? a. If the new compensation plan has no effect on the value of Zelnor's assets, what will be the share price of the stock once this plan is implemented? If the new compensation plan has no effect on the value of Zelnor's assets, the new share price will be $ nothing
Homework Answers
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
SHARE PRICE AFTER EMPLOYEE STOCK OPTION = 11.1545, I
HAVE GIVEN 2 ANSWERS AS NOTHING IS MENTIONED, ONE WITH ROUNDING AND
ONE WITHOUT ROUNDING 
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