Underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.

Question

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According to the dividend irrelevance theory proposed by Miller and Modigliani, the value of the firm is determined only by its basic earning power and its business risk. The theory suggests that the payment of dividends does not affect the value of the firm, as investors can create their own dividends by selling some of their shares in the company. Therefore, the correct answer is A.

Underlying the Dividend Irrelevance Theory Proposed by Miller and Modigliani