Confusing QBank question question, decrease, increase, capital, correct

svgleeson

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?

Rasec

cant get it:S.. any better explanation.. i know the dividend irrelevance theory .. cant understand the question...

Uranus08

Thanks i misread the question

SFoyil

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

needhelp1700

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.

Swanand

dividend irrelevancy!!!

CP