Miller and Modigliani Proclaim That,under Certain Ideal Conditions,dividend Policy Is

question 60

Essay

Miller and Modigliani proclaim that,under certain ideal conditions,dividend policy is irrelevant.
What is it that they are specifically proclaiming to be irrelevant? Explain with the following example.Assume that a firm has $100,000 in assets at market value,no debt,and 100 shares outstanding.Further,$10,000 of the assets is in cash,which represents the recent net income of the firm.Now the firm can choose whether to pay out,say,a 50% dividend,which will necessitate the issuance of $5,000 in new shares,or to pay no dividend and plow back all $10,000 of earnings into a project with an attractive NPV.

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Definitions:

Humans

Members of the species Homo sapiens, characterized by their ability to use complex language, reason, and create complex social structures.

Color Blind

A condition in which a person is unable to distinguish certain colors or sees colors differently due to a lack of one or more types of color receptors in the eyes.

Species

A group of living organisms consisting of similar individuals capable of exchanging genes or interbreeding.

Peripheral Vision

The part of vision that occurs outside the very center of gaze, allowing humans to perceive objects and movement outside of the direct line of sight.