Dividends are irrelevant in perfect capital markets because

Question

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In perfect capital markets, dividends are considered irrelevant because there are no tax consequences differentiating between dividend income and capital gains, no transactions costs for trading shares, and the firm's investment decisions regarding positive-NPV projects are not affected by whether earnings are retained or paid out as dividends. All these factors contribute to the irrelevance of dividend policy in such an idealized setting, as proposed by the Modigliani-Miller theorem.

Dividends Are Irrelevant in Perfect Capital Markets Because