Consider the following two statements: I. Dividends are irrelevant in determining share value.
II) Dividend policy is irrelevant in determining share value.

Question

Quizplus · Accepted Answer

Statement I is commonly known as the dividend irrelevance theory, which suggests that the value of a company's stock is not affected by its dividend policy. However, this statement is not entirely true, as investors may still consider dividends as a factor in their investment decisions.

Statement II suggests that a company's dividend policy has no impact on its stock value, which is also not entirely true. A company's dividend policy can signal its financial strength and performance, attracting investors and potentially increasing stock value.

Therefore, statement I is false, and statement II is true if investors can create homemade dividends, which means that investors can create their cash flows by replicating the dividend payments of a company through selling some of their shares. Thus, answer D is correct.

Consider the Following Two Statements: I