The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy.
A) The level of investment does not influence or matter to the dividend decision
B) Once the dividend policy is set the investment decision can be made as desired
C) The investment policy is set before the dividend decision and not changed by dividend policy
D) None of the above

Question

Quizplus · Accepted Answer

The dividend-irrelevance proposition of Miller and Modigliani states that in a perfect market, the value of a firm is not affected by its dividend policy as long as the investment policy is not changed. Therefore, the investment policy is set before the dividend decision and is not influenced by the dividend policy. This means that choice C is the correct answer.

The Dividend-Irrelevance Proposition of Miller and Modigliani Depends on the Following