easy · Principles of Finance time-value-of-money
According to the Dividend Irrelevance Proposition by Miller and Modigliani, why does the payout policy not affect firm value in perfect markets?
- Dividends are always taxed at the same rate as capital gains.
- Companies that pay dividends are perceived as more stable by the market.
- Investors prefer dividends because they provide a 'bird in the hand' certainty.
- Any dividend paid reduces the firm's cash, which must be offset by issuing new shares, keeping shareholder wealth constant.
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