Miller and Modigliani Proclaim That, Under Certain Ideal Conditions, Dividend

question 90

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 are 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.

Understand the process and implications of perfection of security interests.

Comprehend the exceptions and specific rules related to purchase-money security interests (PMSIs).

Explain the impact of bankruptcy on secured transactions.

Understand the specifics of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

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Definitions:

Service

A provision of intangible benefits or assistance, such as consulting, maintenance, or support, to satisfy consumer needs.

Product Cannibalization

The reduction in sales volume, revenue, or market share of one product as a result of the introduction of a new product by the same producer.

New-Category Entries

Products or services that introduce a new category to the market, often requiring the creation of demand and consumer education.

Planned Obsolescence

A business strategy in which the obsolescence of a product is planned and built into it from its conception, ensuring that consumers will need to purchase new products.