Confusing QBank question

question, decrease, increase, capital, correct

If Modigliani and Miller’s dividend irrelevancy theory is correct, what is the impact on a firm’s cost of capital and share price if its dividend payout increases?

Cost of Capital Share Price

A) An increase A decrease

B) None None

C) None A decrease

Your answer: C was incorrect. The correct answer was B) None None

How come ? if dividend holders are getting higher dividends how come this is not compensated by a lower share price?

Swanand

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发表于 2011-7-13 16:02 | 只看该作者

dividend irrelevancy!!!

CP

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SFoyil

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发表于 2011-7-13 16:02 | 只看该作者

Max
that's the whole point of M&M - no impact on cost of capital related to selection of Debt vs Equity

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needhelp1700

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发表于 2011-7-13 16:02 | 只看该作者

Dividend irrelevance theory says that if investors are not getting enough dividends, they can sell some shares. If they feel they're getting too much, they can use some of that to buy more shares. Hence, the irrelevance.

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Uranus08