Question

The Modigliani and Miller hypothesis suggests that capital structure doesn't matter. All of the following conditions need to be met for this hypothesis to be true EXCEPT Select one: a. capital structure consists only of stocks and bonds. b. all corporate net income is paid out as dividends. c. corporate income is not subject to taxation. d. securities are traded in perfect or efficient markets.

Answer 1

Answer:

The false statement is letter "B": all corporate net income is paid out as dividends.

Explanation:

The Modigliani-Miller Theorem or M&M is used in financial and economic studies to analyze the value of a firm such as a business or a corporation. The M&M theorem states that a firm's value is based on its ability to earn revenue plus the risk of its underlying assets. This value is independent of the way the company distributes its profits or finances its operations.

In that case, dividends have nothing to do with how the M&M theorem values a business.