If the Modigliani and Miller Hypothesis About Dividends Is Correct,and

question 52

Multiple Choice

If the Modigliani and Miller hypothesis about dividends is correct,and if one found a group of companies which differed only with respect to dividend policy,which of the following statements would be most correct?

• A) The residual dividend model should not be used,because it is inconsistent with the MM dividend hypothesis.
• B) The total expected return,which in equilibrium is also equal to the required return,would be higher for those companies with lower payout ratios because of the greater risk associated with capital gains versus dividends.
• C) If the expected total return of each of the sample companies were divided into a dividend yield and a growth rate,and then a scatter diagram (or regression)analysis were undertaken,then the slope of the regression line (or b in the equation D₁/P₀ = a + b(g))would be equal to +1.0.
• D) None of the above statements is true.
• E) All of the above statements are true.

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Definitions:

Day Shift

The period during which work is carried out primarily during daylight hours, often considered as roughly from 8 am to 6 pm.

External Validity

The extent to which the results of a study can be generalized or applied to other settings, populations, or times.

Tuition Increases

The rise in the cost or fees associated with attending an educational institution, typically observed on an annual basis.

Generalizing

The process of applying the results of a study to larger populations or settings beyond the original study context.