What Does the Modernist (Modigliani and Miller) View of Dividend

question 16

Multiple Choice

What does the Modernist (Modigliani and Miller) view of dividend policy say about a higher payout ratio if taxes are ignored?

• A) It will produce a higher share value as shareholders can choose between reinvestment in the company or investment at a higher rate elsewhere.
• B) It will not impact share value as investors can get cash from their shares even if there is no dividend distributed.
• C) It will reduce the share value as there will be less cash for the company to invest in income-generating projects maximizing net present value (NPV).
• D) It will not impact share value as investors are indifferent as to whether they receive cash today or cash in the future.
• E) It will reduce share value as investors seek long term holdings to avoid transactions costs.

---

Definitions:

Stoics

Ancient philosophers who advocated for a life lived in harmony with reason, emphasizing personal ethics informed by a system of logic and its views on the natural world.

Hedonists

Individuals who believe that the pursuit of pleasure is the most important goal of human life.

Courageous

Possessing or displaying bravery and willingness to face fear, danger, or difficulty.

Psychological Egoism

The theory that suggests that all human actions are motivated by self-interest, even when appearing to be altruistic.