The Modigliani and Miller Dividend Irrelevance Argument Does Not Rest

question 50

Multiple Choice

The Modigliani and Miller dividend irrelevance argument does not rest on the assumption that:

• A)investors are not indifferent between dividend income and capital gain income.
• B)a firm's investment decision is independent of its dividend policy.
• C)the costs of acquiring information of a firm's dividend policy are zero.
• D)there are no taxes.

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Definitions:

Carrying Costs

The expenses associated with holding inventory, including storage, insurance, taxes, and opportunity costs.

Inventory Rises

An increase in the quantity of goods that a company holds, which could indicate either growing sales or overproduction.

Revolving Credit

Revolving credit is a flexible funding option where credit is automatically renewed as debts are paid off, up to a certain limit.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.