The cost of granting executive stock options with strike prices adjusted by the cost of capital

Purpose – The purpose of this paper is to estimate the cost of granting executive stocks with strike prices adjusted by the cost of capital.

Design/methodology/approach – In the paper a Monte Carlo simulation approach developed in Longstaff and Schwartz is used in conjunction with the subjective valuation model developed in Ingersoll to value these executive stock options that are subject to performance hurdles.

Findings – The paper finds that standard European Black-Scholes-Merton option values overstate the true cost to the firm of granting these executive stock options. The option values also decrease with a higher dividend yield, a higher performance hurdle, a longer vesting period, and a shorter maturity.

Research limitations/implications – While the study in the paper is limited to the valuation of executive options, the methodology can be used to study incentive effects of executive stock options that have a performance hurdle.

Practical implications – The approach used in this paper to estimate the cost of granting executive stock options is a clear improvement over standard European option pricing approaches that often result in biased estimates.

Originality/value – This paper presents a first attempt to integrate the Ingersoll utility-theoretic model and the Longstaff and Schwartz least squares Monte Carlo algorithm to estimate the subjective value and the objective cost of executive stock options with a performance hurdle. This valuation approach will be useful in the study of other types of executive compensation.

The cost of housing : more than just dollars

Australians were recently awarded the dubious honour of building the largest homes in the world. Our new homes are now seven percent larger than those in the United States and nearly three times larger than those in the United Kingdom. At the same time, the price of an average residential property is now five times what it was 20 years ago. Although incomes have risen over the same period, they have not kept pace with rising house prices. In terms of disposable income, the cost of housing has almost doubled. While traditional housing affordability is measured in terms of house prices and incomes, a broader and more encompassing perspective also indicates that we can no longer ‘afford’ to build houses as we have done in the past. The environmental impact of modern Australian housing is significant. Australians have resisted the need for increased urban density as their capital city populations grow and new houses have been built on the outskirts of the existing cities, encroaching on the greenwedge and agricultural lands, destroying and degrading existing fauna and flora. The houses built have increased carbon emissions because of their size, embodied energy and reliance on the motor car. This paper discusses the environmental ‘affordability’ of current Australian housing and argues that this must be considered alongside traditional affordability criteria so that a more holistic approach to the issues is adopted.

The comparative cost of food and beverages at remote Indigenous communities, Northern Territory, Australia

OBJECTIVE: To determine the average price difference between foods and beverages in remote Indigenous community stores and capital city supermarkets and explore differences across products.

METHODS: A cross-sectional survey compared prices derived from point-of-sale data in 20 remote Northern Territory stores with supermarkets in capital cities of the Northern Territory and South Australia for groceries commonly purchased in remote stores. Average price differences for products, supply categories and food groups were examined.

RESULTS: The 443 products examined represented 63% of food and beverage expenditure in remote stores. Remote products were, on average, 60% and 68% more expensive than advertised prices for Darwin and Adelaide supermarkets, respectively. The average price difference for fresh products was half that of packaged groceries for Darwin supermarkets and more than 50% for food groups that contributed most to purchasing.

CONCLUSIONS: Strategies employed by manufacturers and supermarkets, such as promotional pricing, and supermarkets' generic products lead to lower prices. These opportunities are not equally available to remote customers and are a major driver of price disparity.

IMPLICATIONS: Food affordability for already disadvantaged residents of remote communities could be improved by policies targeted at manufacturers, wholesalers and/or major supermarket chains.

Workplace "bargaining" and the wages/working time nexus: counting the cost of decentralisation

The impact of deregulation on dispersion of earnings in Victoria has been
acknowledged in the findings of the recent task force enquiry into industrial relations in Victoria. This paper argues that the link between hours worked and rates of pay has played a significant role in this increased dispersion. Drawing upon detailed analysis of hours and wages in Victorian agreements, data is presented on declining take-home pay flowing from the loss of penalty rates. This, we argue, is attributable to
the lack of substantive and procedural protections available to Victorian workers under schedule 1A of the Workplace Relations Act, and formerly under the Victorian Employee Relations Act, 1992. We contrast these findings with collective agreements trading off penalty rates certified by the Australian Industrial Relations Commission, and Australian Workplace Agreements approved by the Office of the Employment
Advocate. We conclude by suggesting there is a scale of fair outcomes attached to the wages/hours trade-off, directly attributable to the various institutional mechanisms now influencing Australian wage determination.

Pharmaceutical benefits in Australia and Sweden: welfare policy and the cost of prescription drugs

Pharmaceutical benefits provide a stable framework within which consumers, prescribers, suppliers, pharmacists and other actors undertake transactions. The state in effect delivers a good that enhances individual autonomy. A major reason for the legitimacy enjoyed by pharmaceutical benefits in both Australia and Sweden is that these programs have strong attributes of universalism (rather than targeting). Sweden's predominantly public health system allows greater scope for pharmaceutical policy innovation. Australia's Pharmaceutical Benefits Scheme (PBS), while historically resilient and effective, is now wedged precariously between traditional considerations of equity and public health on the one hand, and constant pressure for increased marketisation on the other.

Aging effects on the metabolic and cognitive energy cost of interlimb coordination

Many everyday motor tasks have high metabolic energy demands, and some require extended practice to learn the required coordination between limbs. Eight older (73.1 6 4.4 years) and 8 younger (23.3 6 5.9) men practiced a  high-energy two-hand coordination task with both 1808 and 908 target  relative phase. The older group showed greater performance error in both conditions, and performance at 908 was strongly attracted to antiphase coordination (1808). In a retention test one week following the acquisition trials, the older group had learned the 1808 condition but did not learn the 908 condition. Metabolic energy cost was not different between groups, but the older men showed higher heart rate and both conditions imposed  greater cognitive demands as revealed in auditory probe reaction time. Older adults’ motor learning may be inhibited by elevated heart rate at the same  oxygen cost, increased cognitive cost, and an attraction toward more  established low-energy in-phase or antiphase coordination.

The cultural role of capital cities : Hanoi and Hue, Vietnam

Hanoi promotes itself both as a place for foreign investment in urban development and as the 'cradle of Vietnamese civilisation'. Special status is given to places of national heritage significance, and policy makers and planners face challenges of balancing heritage conservation and modern development. By contrast, the former capital, Hue, continues to decline economically relative to other Vietnamese cities and is discovering value in its imperial heritage as a 'vector for development'. These Vietnamese capital cities demonstrate that heritage conservation is a key consideration in government efforts to improve the position of their constituencies in the newly-shaping global and national economic systems.

The cost of recovery protocols in web-based database systems

The cost of recovery protocols is important with respect to system performance during normal operation and failure in terms of overhead, and time taken to recover failed transactions. The cost of recovery protocols for web database systems has not been addressed much. In this paper, we present a quantitative study of cost of recovery protocols. For this purpose, we use an experiment setup to evaluate the performance of two recovery algorithms, namely the, two-phase commit algorithm and log-based algorithm. Our work is a step towards building reliable protocols for web database systems.

Lifetime cost of stroke subtypes in Australia: findings from the North East Melbourne stroke incidence study (NEMESIS)

Background and Purpose-: Little is known about any variations in resource use and costs of care between stroke subtypes, especially nonhospital costs. The purpose of this study was to describe the patterns of resource use and to estimate the first-year and lifetime costs for stroke subtypes.

Methods-: A cost-of-illness model was used to estimate the total first-year costs and lifetime costs of stroke subtypes for all strokes (subarachnoid hemorrhages excluded) that occurred in Australia during 1997. For each subtype, average cost per case during the first year and the present value of average cost per case over a lifetime were calculated. Resource use data obtained in the North East Melbourne Stroke Incidence Study (NEMESIS) were used.

Results-: The present value of total lifetime costs for all strokes was Aus $1.3 billion (US $985 million). Total lifetime costs were greatest for ischemic stroke (72%; Aus $936.8 million; US $709.7 million), followed by intracerebral hemorrhage (26%; Aus $334.5 million; US $253.4 million) and unclassified stroke (2%; Aus $30 million; US $22.7 million). The average cost per case during the first year was greatest for total anterior circulation infarction (Aus $28 266). Over a lifetime, the present value of average costs was greatest for intracerebral hemorrhage (Aus $73 542), followed by total anterior circulation infarction (Aus $53 020), partial anterior circulation infarction (Aus $50 692), posterior circulation infarction (Aus $37 270), lacunar infarction (Aus $34 470), and unclassified stroke (Aus $12 031).

Conclusions-: First-year and lifetime costs vary considerably between stroke subtypes. Variation in average length of total hospital stay is the main explanation for differences in first-year costs.

Cost of stroke in Australia from a societal perspective: results from the north east Melbourne stroke incidence study (NEMESIS)

Background and Purpose—— Accurate information about resource use and costs of stroke is necessary for informed health service planning. The purpose of this study was to determine the patterns of resource use among stroke patients and to estimate the total costs (direct service use and indirect production losses) of stroke (excluding SAH) in Australia for 1997.

Methods—— An incidence-based cost-of-illness model was developed, incorporating data obtained from the North East Melbourne Stroke Incidence Study (NEMESIS). The costs of stroke during the first year after stroke and the present value of total lifetime costs of stroke were estimated.

Results—— The total first-year costs of all first-ever-in-a lifetime strokes (SAH excluded) that occurred in Australia during 1997 were estimated to be A$555 million (US$420 million), and the present value of lifetime costs was estimated to be A$1.3 billion (US$985 million). The average cost per case during the first 12 months and over a lifetime was A$18 956 (US$14 361) and A$44 428 (US$33 658), respectively. The most important categories of cost during the first year were acute hospitalization (A$154 million), inpatient rehabilitation (A$150 million), and nursing home care (A$63 million). The present value of lifetime indirect costs was estimated to be A$34 million.

Conclusions—— Similar to other studies, hospital and nursing home costs contributed most to the total cost of stroke (excluding SAH) in Australia. Inpatient rehabilitation accounts for {approx}27% of total first-year costs. Given the magnitude of these costs, investigation of the cost-effectiveness of rehabilitation services should become a priority in this community.

Estimating the user cost of soil erosion in tea smallholdings in Sri Lanka

Soil erosion in developing countries is a widespread problem causing considerable economic damage. It still remains an intractable problem in many countries. Available research findings on costs of soil erosion indicate them to be high. Soil erosion continues to be a problem due to the difficulties of estimating the economic damages and attendant difficulties in developing effective control policies. This paper considers soil to be a nonrenewable resource and estimates the marginal user costs using a yield damage function. Results indicate user costs to be low for individual farms. The low user costs are due to some of the assumptions made with respect to a number of parameters such as prices of tea, costs, and technological developments. The results also indicate that marginal user costs are sensitive to prices, soil depth and soil loss.

It's time to determine the cost of a healthy diet in Australia

Economic factors are important determinants of food security. In terms of food access, financial resources determine an individual’s ability to procure food; on the supply side, the cost of food is equally important. The interplay of these two factors, financial resources and cost, is perhaps the most immediate and important determinant of what people do (or do not) put into their shopping trolleys or purchase at the takeaway and ultimately eat – if you cannot afford it you cannot eat it even if you want to!