Question

Which of the following is not true for MM Model?

• A. Share price goes up if dividend is paid
• B. Share price goes down if dividend is not paid
• C. Market value is unaffected by Dividend policy
• D. All of the above

Answer 1

Answer: (C)

Market value is unaffected by Dividend policy

Miller and Modigliani Model (MM Model) Miller and Modigliani Model assume that the dividends are irrelevant. Dividend irrelevance implies that the value of a firm is unaffected by the distribution of dividends and is determined solely by the earning power and risk of its assets.