If the Three Conditions of Modigliani and Miller Hold, Then

question 74

True/False

If the three conditions of Modigliani and Miller hold, then dividend policy should not affect firm value.

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Definitions:

Long Run Equilibrium

A state in which all factors of production and costs are variable, and firms no longer have an incentive to enter or exit an industry, leading to a stable market condition.

Firm

A business organization that sells goods or services in order to make a profit.

Producer Surplus

The difference between what producers are willing to receive for a good or service and the actual amount they receive, due to the market price being higher.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance premiums.