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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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3 years ago
Sally’s Dress Shop, Inc. reports operating income of $200,000 and interest expense of $18,000. The average common stockholders’
Sphinxa [80]

Answer:

5

Explanation:

Given that,

Beginning assets = $80,000

Ending asset = $120,000

Operating income = $200,000

Interest expense = $18,000

Average common stockholders’ equity = $20,000

Average total assets:

= (Beginning assets + ending asset) ÷ 2

= ($80,000 + $120,000) ÷ 2

= $100,000

Leverage ratio:

= Average total assets ÷ Average common stockholders' equity

= $100,000  ÷ $20,000

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7 0
4 years ago
Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has ​$6,000 for his CD
OlgaM077 [116]

Answer:

The maturity value of certificate of deposit(CD) would be:

A = P (1\ +\ r)^{n}

wherein, A= Amount

              P= Principal

              r= rate of interest compounded annually

              n= no of years to maturity

(a) two year investment plan:

   $6000 (1 + .05) (1 + .05) = $6615

(b) five year investment plan:

= $6000 (1\ +\ .05)^{5} = 6000 (1.2763) = $7657

(c) eight year investment plan:

= $6000 (1\ +\ .05)^{8} = $6000(1.4774) = $8865 approx.

(d) twenty year investment = $6000 (1\ +\ .05)^{20} = $6000 (2.6533) = $15,920 approx

7 0
3 years ago
​Isabellas, Inc., a local convenience​ store, sells soft drinks. It sells two large drinks for every small drink. A large drink
rjkz [21]

Answer:

Weighted average contribution margin= $1.85

Explanation:

Giving the following information:

It sells two large drinks for every small drink. A large drink sells for $3.00 with a variable cost of $ 0.60. A small drink sells for $ 1.25 with a variable cost of $ 0.50.

To calculate the weighted average contribution margin, we need to use the following formula:

Weighted average contribution margin= (weighted average selling price - weighted average unitary variable cost)

Sales proportion:

Large drink= 0.67

Small drink= 0.33

Weighted average contribution margin= (0.67*3 + 0.33*1.25) - (0.67*0.6 + 0.33*0.5)

Weighted average contribution margin= 2.4225 - 0.567

Weighted average contribution margin= $1.85

4 0
3 years ago
5. The demand for professional education is increasing these days. Put your views to support the
Alja [10]

Answer:

Professional education helps to rectify the errors in business

Explanation:

3 0
3 years ago
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