EMC 2007 Annual Report Download - page 102
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EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2005, the increase in stock compensation costs, net of taxes, in addition to the amounts in the aforementioned table, would have been $57.0 million.
Fair Value of EMC Options
The fair value of each option granted during 2007, 2006 and 2005 is estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:
For the Year Ended
December 31,
EMC Stock Options
2007 2006 2005
Dividend yield None None None
Expected volatility 33.8% 35.2% 40.3%
Risk-free interest rate 3.6% 4.8% 4.0%
Expected life (in years) 4.2 4.0 4.0
Weighted-average fair value at grant date $ 6.29 $ 3.80 $ 5.29
For the Year Ended
December 31,
EMC Employee Stock Purchase Plan
2007 2006 2005
Dividend yield None None None
Expected volatility 25.5% 27.6% 42.4%
Risk-free interest rate 5.0% 4.8% 2.9%
Expected life (in years) 0.5 0.5 0.5
Weighted-average fair value at grant date $ 3.53 $ 2.89 $ 3.97
Expected volatilities are based on our historical and implied volatilities from traded options in our stock. We use EMC historical data to estimate the
expected term of options granted within the valuation model. The risk-free interest rate was based on a treasury instrument whose term is consistent with the
expected life of the stock options.
Fair Value of VMware Options
The fair value of each option to acquire VMware Class A common stock granted during the year ended December 31, 2007 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
VMware Stock
Options
VMware Employee Stock
Purchase Plan
Dividend yield None None
Expected volatility 39.2% 34.8%
Risk-free interest rate 4.9% 4.8%
Expected life (in years) 3.4 0.4
Weighted-average fair value at grant date $ 27.88 $ 6.99
Volatility was based on an analysis of historical and implied volatility of publicly-traded companies with similar characteristics, including industry, stage
of life cycle, size and financial leverage. The expected term was calculated based on the historical experience that VMware employees have had with EMC
stock options grants as well as the expected term of similar grants of comparable companies. The risk-free interest rate was based on a treasury instrument
whose term is consistent with the expected life of the stock options.
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