According to Modigliani and Miller dividend policy would be irrelevant if which of the following was true?
I.Personal and corporate income taxes do not exist
II.Markets are strong-form efficient
III.Transaction costs were negligible
A)I
B)III
C)II an III
D)I, II, and III

Question

Quizplus · Accepted Answer

Modigliani and Miller's dividend irrelevance theory posits that in a perfect market, the dividend policy of a company is irrelevant to its value. This theory assumes no taxes, no transaction costs, and that markets are efficient (including strong-form efficiency), meaning all available information is reflected in stock prices. Thus, if personal and corporate income taxes do not exist, transaction costs are negligible, and markets are strong-form efficient, the dividend policy would indeed be irrelevant according to Modigliani and Miller.

According to Modigliani and Miller Dividend Policy Would Be Irrelevant