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Which TWO of the following are consistent with dividend irrelevance theory?
A.The value of a company is determined solely by the earnings of its investment decisions
B.A company cannot reduce dividend payments to finance investments
C.No transaction costs are incurred in selling shares
D.Differing rates of taxation on dividends and capital gains have no effect on dividend policyit seems to me there is three correct options, why D is incorrect ?
The two options that are consistent with dividend irrelevance theory are:
A. The value of a company is determined solely by the earnings of its investment decisions.
C. No transaction costs are incurred in selling shares.Option D is incorrect because differing rates of taxation on dividends and capital gains can affect investor preferences and thus influence dividend policy, which contradicts the premise of dividend irrelevance theory.
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