Calculate the cash required to exercise
See this course’s project requirements
An equity-offer file with grant terms, vesting, exercise-cost scenarios, dilution, deadline questions and a cash-based offer comparison.
Keep your working files in your own notebook or software. Save a private description, checklist, and work link in My Proof.
What to include
- An offer term sheet separating salary and contingent equity.
- A vesting calendar and departure scenario. An exercise-cost worksheet with three hypothetical price scenarios.
- A simple dilution calculation and denominator questions.
- A departure deadline map and tax-adviser question list.
- A complete equity-offer comparison with a conditional recommendation.
Review and revise
Use these criteria to check your work and choose what to improve.
- Calculations reconcile to the supplied records, with units and dates labeled.
- Assumptions and missing information are visible, including the changed scenario.
- The recommendation follows the evidence and explains an important limitation.
- The six lesson outputs form a usable handoff that another learner can check.
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The idea in everyday life
Fictional Cedar Apps offers $48000 annual salary plus 1200 options with a $3 exercise price. The options vest 25% after 12 months, then 25% at each later anniversary through year 4. Unvested options are forfeited on leaving; vested options expire 90 days after leaving or at their stated 10-year expiration, whichever comes first. No sale market is promised. These invented terms are not standard terms or legal advice. At month 24, 600 options are vested. Compare hypothetical share prices $2, $3 and $7. Ignore tax and transaction costs only for the arithmetic, and label them excluded.
Exercise can require cash even when a later sale is uncertain. Show costs separately from a hypothetical price spread.
Calculate the cash required to exercise — worked practice
Exercise can require cash even when a later sale is uncertain. Show costs separately from a hypothetical price spread.
Fictional Cedar Apps offers $48000 annual salary plus 1200 options with a $3 exercise price. The options vest 25% after 12 months, then 25% at each later anniversary through year 4. Unvested options are forfeited on leaving; vested options expire 90 days after leaving or at their stated 10-year expiration, whichever comes first. No sale market is promised. These invented terms are not standard terms or legal advice. At month 24, 600 options are vested. Compare hypothetical share prices $2, $3 and $7. Ignore tax and transaction costs only for the arithmetic, and label them excluded.
1. Find purchase cost
Multiply 600 by $3.
You should see: Exercise would require $1800 before excluded costs.
This is cash at risk, not a fee-free gift.
2. Calculate spread
Subtract $3 from each hypothetical share price.
You should see: Per-share spreads are −$1, $0 and $4.
An option can have no positive exercise spread.
3. Calculate positive scenario
Multiply the $4 spread by 600.
You should see: $2400 hypothetical pre-tax spread at a $7 price.
A spread is not guaranteed sale proceeds.
4. Record restraint
Add that no exercise decision is required and no buyer is assured.
You should see: The worksheet is a scenario, not a trading instruction.
Separate arithmetic from personal financial advice.
What to finish
An exercise-cost worksheet with three hypothetical price scenarios.
Watch for this
Calling a pre-tax spread guaranteed profit.
How can I tell I understand it?
Explain your calculation or classification and reproduce the changed case without copying the worked result.
Quick knowledge check
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Go to the knowledge checkOptional course overview video · same video as Lesson 1
What are stock options, and how do they work?
From Carta. Watch here or open it on YouTube .
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Source & access notes · checked 2026-09-12
Inspected distinction between employee options and employee stock ownership retirement plans.
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Reuse: Link to the original. Free reading does not imply permission to reproduce the page; lessons and fixtures here are original.
Source & access notes · checked 2026-09-12
Inspected statutory/nonstatutory distinctions and tax events; no individualized tax computation is taught.
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Reuse: Link to the original. Free reading does not imply permission to reproduce the page; lessons and fixtures here are original.
Source & access notes · checked 2026-09-12
Inspected compensatory securities exemption and resale restrictions. Fictional terms control all exercises.
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Reuse: Link to the original. Free reading does not imply permission to reproduce the page; lessons and fixtures here are original.
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