Multiple choice

M - M Theory in perfect market suggests that dividend payment has

  1. a positive impact on the value of a firm

  2. no impact on the value of a firm

  3. a negative impact on the value of a firm

  4. negligible impact on the firm
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Modigliani-Miller (M-M) Theory states that in perfect markets, dividend policy has no effect on the value of a firm. Investors are indifferent between dividends and capital gains because they can create their own dividend policy by selling shares if needed. The firm's value depends only on its investment decisions and earning power, not on how it distributes profits.

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