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:

Exported

Goods or services sent from one country to another for sale or trade.

Imported

Goods or services brought into one country from another for sale or use.

Producer Surplus

Producer surplus is the difference between what producers are willing to accept for a good or service and what they actually receive due to higher market prices.

Tariff

A tax imposed by a government on imported or exported goods, often used to protect domestic industries or to generate revenue.