Under the Idealized Conditions of MM,which Statement Is Correct When

question 109

Multiple Choice

Under the idealized conditions of MM,which statement is correct when a firm issues new stock in order to pay a cash dividend on existing shares?

• A) The new shares are worth less than the old shares.
• B) The old shares drop in value to equal the new price.
• C) The value of the firm is reduced by the amount of the dividend.
• D) The value of the firm is unaffected.

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Definitions:

Opportunity Cost

Opportunity cost is the value of the next best alternative forgone as the result of making a decision.

Henry George

A 19th-century economist known for his belief that people should own the value they produce themselves, but that land and natural resources should belong to all (Georgism).

Allocative Efficiency

A state of resource allocation in which it is impossible to make any one individual better off without making at least one individual worse off.

Incentive Function

The role of rewards or penalties in motivating individuals or entities to behave in certain ways.