A large part of a CEOs compensation is the stock options offered by the company. The idea is that such compensation plans based on the value of the company will align the interests of the corporate managers and the shareholders.

1. Would the companys payout policy affect the value of these options? Explain how.

2. Would it matter if a company issues dividends vs. buys back some shares? Explain.

3. How would a companys capital structure affect the value of these stock options? Explain.

4. If a company decides to issue debt to pay dividends, how will the value of these options be affected? Explain.