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yaroslaw [1]
3 years ago
7

According to Modigliani and Miller, a firm's value is determined solely by the earning power and risk of its assets and that the

manner in which it splits its earnings stream between dividends and internally retained funds does not affect this value.
True or False?
Business
1 answer:
Varvara68 [4.7K]3 years ago
5 0

Answer:

True

Explanation:

Modigliani and Miller or MM hypothesis states that dividend policy of a firm plays no role in the determination of the market value of it's stock or the market value of the firm.

As per the theory, dividend policy of a firm is irrelevant and does not affect the value of the firm.

The theory maintains that under specific set of assumptions, the capital structure of a firm and it's composition does not play any role in determining the value of a firm and no capital structure can be termed as optimal.

It further states, the value of a firm is determined by capitalizing it's expected return with the firm's average cost of capital. Also, a firm cannot change the total value of it's securities by splitting it's cash flows into different streams such as dividends or retained earnings.

A firm's value is determined by a firm's real assets and not by it's issued securities.

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Answer:  

Guidelines to consider include:

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Explanation:

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4 0
3 years ago
What two conditions must hold for a competitive market to produce efficient outcomes?
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3 years ago
Refer to exhibit 4-1. in a free market, ________ units of the good would be exchanged. with a price ceiling, _______ units of th
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3 years ago
ProTech began business at the start of the current year. The company planned to produce 40,000 units, and actual production conf
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Answer:

$230,000

Explanation:

Calculation for what the company's absorption-costing income would be:

First step is to calculate the Fixed manufacturing per unit

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Second step is to calculate the per units cost using this formula

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