If a Company Announces a Change in Its Dividend Policy

question 27

True/False

If a company announces a change in its dividend policy from a zero target payout ratio to a 100% payout policy, this action could be expected to increase the value of long-term options (say 5-year options) on the firm's stock.

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Definitions:

Lubrication

The process or action of applying a substance (such as oil or grease) to minimize friction and wear between mechanical parts.

Sales Tax

Sales Tax is a tax paid to a governing body for the sales of certain goods and services, collected by the retailer at the point of purchase.

Depreciable Cost

The total cost of a tangible fixed asset minus its estimated salvage value at the end of its useful life.

Revised Annual Depreciation

An updated calculation of depreciation expense for an asset, altering the original depreciation schedule due to changes in estimation of useful life or resale value.