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Modigliani-Miller (MM) Dividend Hypothesis says dividends are:
ARelevant — high dividends maximise value
BIrrelevant — under perfect markets dividends do not affect value
CAlways equal to EPS
DAlways zero
Answer & Solution
Correct answer: B. Irrelevant — under perfect markets dividends do not affect value
1. MM Dividend Irrelevance: in perfect markets with no taxes or transaction costs, dividend policy does not affect firm value.
2. Investors can create "homemade" dividends.
3. Value depends only on earning power.
_Source: ICAI BoS CA Inter Paper 6A, Ch 8 "Dividend Decisions", §1 — MM Approach_