Stock Option & Equity Grant Valuation
Options and equity grants are a routine part of small-company deals — a key employee’s grant, a warrant kept by the seller, an earnout structured as equity. Counting them at face value misprices the deal in either direction. ExitSight values them with the Black–Scholes model, splitting each option into its intrinsic value and the time value that depends on volatility and term.
THE FORMULA
Call = S·N(d₁) − K·e^(−rT)·N(d₂)
S is the share value today, K the exercise price, T years to expiration, r the risk-free rate; volatility drives the time value.
When to use it
- A key employee or partner holds options and the engagement must value them.
- Part of the consideration is a warrant or an equity-based earnout.
- An equity grant needs a defensible value for compensation or tax purposes.
When it misleads
- Volatility cannot be estimated from anything real — the model output inherits the guess.
- The “option” actually carries control rights; read the agreement before modeling it as a plain call.
- Deep-in-the-money grants with no time remaining — intrinsic value is the answer, no model needed.
What ExitSight asks you for
| Input | Where it comes from |
|---|---|
| Share value today | Your concluded per-share value |
| Exercise (strike) price | The grant or warrant agreement |
| Volatility | Your estimate; comparable-company volatility is the usual anchor |
| Risk-free rate and term | Treasury yield matching the years to expiration |
| Options granted | The grant agreement |
Worked example
The sample grant — 25,000 options struck at $10.00 on shares worth $12.50 today, four years to expiration, 45% volatility:
| Intrinsic value per share | $2.50 |
| Time value per share | $3.47 |
| Call option value per share | $5.97 |
| Options granted | 25,000 |
| Value of the grant | $149,321 |
In the report
Prints as an appendix schedule with the model inputs stated. See the sample report ›