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Which of the following is the best statement of the conclusion of Modigliani and Miller on the relevance of dividend policy?
A. All shareholders are indifferent between receiving dividend income and capital gains
B. Increase in retentions results in a higher growth rate
C. Discounting the dividends is not an appropriate way to value the firm’s equity
D. The value of the shareholders’ equity is determined solely by the firm’s investment selection criteria
Sir the answer is D. Why isnt it A?
I would have been tempted to choose A as well, but the reason it is not A is because although shareholders should be indifferent in theory, it does not mean that all shareholders actually are indifferent – in practice most shareholders to care as to whether they get dividend income or capital gains.
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