The Reasons for Dividend Policy being Irrelevant. Introduction : Dividend Irrelevance Theory is a significant hypotheses concerning dividend policy in an undertaking. The creators Modigliani and Miller guaranteed that neither the cost of company's stock nor its cost of capital is influenced by its dividend policy. The organization's capacity to acquire cash and riskiness of its movement can affect its worth.

Question

Want to see the full answer?

Answer 1

Question

Chapter 19, Problem 19CQ

Summary Introduction

To determine: The Reasons for Dividend Policy being Irrelevant.

Introduction: Dividend Irrelevance Theory is a significant hypotheses concerning dividend policy in an undertaking. The creators Modigliani and Miller guaranteed that neither the cost of company's stock nor its cost of capital is influenced by its dividend policy. The organization's capacity to acquire cash and riskiness of its movement can affect its worth.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

which one is correct please confirm? QUESTION 21 Finance researcher Myron Gordon argues that ____. a. the clientele effect has no influence on share value b. the existence of transaction costs has no impact on the dividend decision c. dividends reduce uncertainty, and thus the payment of dividends will increase the firm's value d. risk-averse shareholders may prefer some dividends over the promise of future capital gains if the interest rate is expected to decline

In examining investors’ preferences for dividends, it is useful to begin with the concept of dividend irrelevance. Dividend irrelevance suggests that in a world with no taxes or brokerage (or transaction) costs, firms and investors are indifferent to the paying or receiving of dividends. However, as these restrictions are relaxed, various factors suggest that firms should pursue high or low payouts. One such factor is: Dividends received far into the future are significantly more uncertain than dividends received in the near future. Based on the factor described, identify whether investors, in general, will tend to favor high or low payout ratios. Favor a high payout Favor a low payout

The bird-in-the-hand argument espousing the importance of dividends or dividend relevance suggests that investors view a current (certain) dividend as less risky than future (uncertain) dividends or capital gains; nevertheless, proponents of this theory argue that this will have no significant impact on share price. Is this true or false