The dividend-irrelevance proposition of Miller and Modigliani depends on the following relationship between investment policy and dividend policy:
A)Changes in investment policy will alter dividend policy.
B)Changes in dividend policy will alter investment policy.
C)Investment policy is independent of dividend policy.
D)Dividends are tax-deductible and investments are depreciable.

Question

Quizplus · Accepted Answer

The dividend-irrelevance proposition of Miller and Modigliani assumes that investment policy is independent of dividend policy, and that changes in dividend policy will not affect the value of the firm. Instead, the value of the firm depends only on its investment policy and the stream of future cash flows it generates, regardless of whether those cash flows are returned to shareholders through dividends or reinvested in the firm.

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