GENERAL KNOWLEDGE

GK

ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Modigliani and Miller’s dividend policy of a firm is
A
Relevant
B
Irrelevant
C
Unrealistic
D
None of these
Explanation: 

Detailed explanation-1: -Miller and Modigliani suggested that in a perfect share market, the dividend policy is irrelevant. They proposed that the dividend policy of a company has no effect on the stock price of a company or the company’s valuations.

Detailed explanation-2: -Franco Modigliani and Merton Miller developed the dividend irrelevance theory is a famous seminal paper in 1961. According to these authors, the announcement and payment of dividends by a company have no impact on the stock price neither does it affect the company’s capital structure.

Detailed explanation-3: -Dividends are a cost to a company and do not increase stock price. Conceptually, dividends are irrelevant to the value of a company because paying dividends does not increase a company’s ability to create profit.

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