Monkeys, I had a question on management options.
I came across this in a recent modelling test - "Sponsor and Management have agreed a 10% option pool. This will be fully allocated at closing with the optionset at original cost"
What do they mean by "this will be fully allocated at closing" and "option strike price set at original cost"?
Say initial sponsor equity is £100MM, exitis £300MM, is the below the right way of calculating this?
Exit Equity Value= £300MM
Cash from Management Option Exercised = £11MM (=100/0.9*0.1)
Management Option Proceeds = £30MM
Exit Sponsor Equity Value= £300MM + £11MM - £30MM = £281MM