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Dividend Decision : Business Finance MCQ Practice Questions & Answers (English) - ObjectiveMcq

Business Finance Practice

Browse

All Practice

Topics

Capital Budgeting Decisions
- NPV
- Payback Period
Capital Structure
Dividend Decision
- Financial Management
Financial Management
Financial Ratios
Sources Of Finance
Working Capital Management

PracticeBusiness FinanceDividend Decision

Dividend Decision in Business Finance : Practice MCQ Questions & Answers with Explanations

1 practice sets · Page 1 of 1

Business FinanceMediumDividend DecisionFinancial Management

According to the Modigliani-Miller (MM) hypothesis, the value of a firm is:

Dependent on its dividend policy

Independent of its dividend policy

Maximised when dividend payout is 100%

Determined solely by retained earnings

View Answer

Correct Answer: B — Independent of its dividend policy

Explanation:

The correct answer is B: Independent of its dividend policy.

The Modigliani-Miller hypothesis (1961) states that in a perfect capital market (no taxes, no transaction costs, rational investors), a firm's value is determined entirely by its earning power and the risk of its underlying assets, not by how it distributes earnings. Shareholders are indifferent between dividends and capital gains.