GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Relevant
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Irrelevant
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Unrealistic
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None of these
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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.