Discounted cash flow (DCF) models have been criticised for using risky discount rates and subjective estimates of future cash flows. In addition, DCF models do not incorporate valuations of implicit options imbedded in capital projects. Recently, researchers have applied real options pricing models to evaluate real estate projects and contracts. However, the required assumptions and criteria for using these models may be absent in real estate projects, which raises the question whether these models produce better results or create more uncertainties for end users. This paper contains a review of the conditions and methods that have been proposed for applying real option models in real estate valuations.

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PurposeMany corporate managers, with the aid of the board of directors, discovered that they could provide themselves with guaranteed or excessive compensation by manipulating the terms of stock option grants that were included in their compensation packages. This paper seeks to examine the legal, tax, and accounting issues that have evolved because of these suspect illegal activities.Design/methodology/approachThe author presents the theory behind performance‐based compensation that is the basis for employee stock option grants. The author then examines regulations, judicial theory, and court cases to determine the current legal status of backdating, spring loading, or bullet dodging of executive stock option grants.FindingsThe current legal environment has made it difficult for executives to continue the practice of manipulating stock option grants without falling under the ire of regulators and shareholders. However, a question remains whether executives that manipulated stock option grants in the past will be found criminally liable for their acts.Practical implicationsThe paper's review of the discourse on the legality of corporate executives enhancing their compensation packages shows the complexity of detecting and regulating this type of suspect activity.Originality/valueThis paper presents a contemporaneous discussion and data on legal and regulatory changes that resulted from management malfeasance of executive compensation.

Statement of Financial Accounting Standards (SFAS) 34 requires firms that develop or self-construct their own assets to capitalize related interest payments. As a result, the reported interest expense of self-constructing firms may be understated, and earnings per share overstated. This study compares key profitability ratios between Real Estate Investment Trusts (REITs) that actively self-construct properties with REITs that do not. It was found that self-constructing REITs will report significantly favourable profitability ratios as compared with REITs that invest in fully developed properties. Because many REITs do self-construct, explicit capitalized interest expense disclosure are recommended so that financial analysts can make appropriate comparisons.

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