The dividend irrelevance hypothesis is based on all of the following assumptions except:
A) investment decisions will not be altered by the amount of dividend payments.
B) investors do not need cash dividends to supplement their current income.
C) perfect capital markets.
D) borrowing decisions will not be altered by the amount of dividend payments.

Question

Quizplus · Accepted Answer

The dividend irrelevance hypothesis assumes perfect capital markets, where investors can buy or sell shares at any time without transaction costs and there is no tax on dividends. It also assumes that investment and borrowing decisions are not affected by dividend payments since investors can create their own desired income streams through selling shares or borrowing. However, it does not assume that investors do not need cash dividends to supplement their current income, as some investors may prefer current income over future growth potential. Therefore, option B is the exception.

The Dividend Irrelevance Hypothesis Is Based on All of the Following