Q233
Which of the following is the assumption of the MM model on dividend policy?
A.
The firm is an all-equity firm
B.
The investments of the firm are financed solely by retained earnings
C.
The firm has an infinite life
AnswerD.
None of the above
Answer: Option C
Solution
Answer: Option C
Solution:
The firm has an infinite life is the assumption of the MM model on dividend policy. According to Miller and Modigliani Hypothesis or MM Approach, dividend policy has no effect on the price of the shares of the firm and believes that it is the investment policy that increases the firm’s share value.