In the absence of taxes, transaction costs or changes in a firm's operating or investment policies
A)the greater the payout ratio, the greater the share price of the firm.
B)the price of a share is not affected by dividend policy.
C)the firm should retain earnings so shareholders will receive a capital gain.
D)the firm should pay a dividend only after current equity financing needs have been met.

Question

Quizplus · Accepted Answer

In the absence of taxes, transaction costs or changes in a firm's operating or investment policies, the price of a share is not affected by dividend policy. This is known as the Modigliani-Miller theorem. Therefore, choices (A), (C) and (D) are incorrect.

In the Absence of Taxes, Transaction Costs or Changes in a Firm's