In our model we will assume that TargetCo's stock options held by employees of TargetCo are replaced upon consummation of the transaction with new BuyerCo options. Employee stock options can be either vested or unvested. To calculate the value of the replacement options, we must first determine the fair value of TargetCo's employee stock options using the Black-Scholes or similar method.
Since the value of the TargetCo's employee stock options changes with the transaction price per share, we must calculate the fair value of these options over a range of possible transaction prices. Most inputs in the Black-Scholes formula shown in the spreadsheet below can be obtained from TargetCo's most recent 10-K filing.
Let's start a new tab called "GAAP" where we will enter our options and other accounting calculations.