According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.

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According to Modigliani and Miller's theory of perfect capital markets, a firm's value is determined by its earning power and risk, independent of how it chooses to allocate earnings between dividends and retained funds. This is known as the dividend irrelevance theory.

According to Modigliani and Miller, a Firm's Value Is Determined