An assumption of the MM dividend irrelevance proposition is that:

Question

Quizplus · Accepted Answer

The MM dividend irrelevance proposition, formulated by Modigliani and Miller, posits that in a perfect market, the dividend policy of a company is irrelevant to its valuation. This theory assumes that the value of a firm is determined by its earning power and investment policy, not by how earnings are distributed between dividends and retained earnings. Therefore, if a company pays out extra cash dividends, the reduction in the company's assets is reflected in its stock price, leading to a capital loss that offsets the cash dividend, making the overall value to shareholders unchanged.

An Assumption of the MM Dividend Irrelevance Proposition Is That