The Call Option on a Dividend Paying Stock Compared to a Non-Dividend

question 19

Multiple Choice

The call option on a dividend paying stock compared to a non-dividend paying stock is:

• A)more valuable because of the extra dividend payment.
• B)equal in value because cash dividends are paid on stock only.
• C)less valuable because cash dividends are paid on stock only.
• D)less valuable if the dividend paying stock is in-the-money while the non-dividend paying stock if out-of-the-money.
• E)None of the above.

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Definitions:

Days' Sales Uncollected

A financial metric that measures how long it takes, on average, for a company to collect cash from its credit sales.

Profit Margin

A financial metric that measures the amount of net income earned with each dollar of sales generated by comparing the profit and the revenue.

Total Asset Turnover

A financial measure that calculates the ability of a company to turn its assets into sales revenue.

Return On Total Assets

A financial ratio that measures a company's ability to generate profit from its assets.