Under Modigliani and Miller's Dividend Irrelevance Theory, a company has - 1,00,000 to distribute. If it chooses to retain the earnings instead of…

CA Intermediate · Financial Management and Strategic Management · MTP · January 2025
Under Modigliani and Miller's Dividend Irrelevance Theory, a company has - 1,00,000 to distribute. If it chooses to retain the earnings instead of paying dividends, what happens to shareholder wealth?
(A) Increases due to reinvestment opportunities.
(B) Decreases due to lower immediate returns.
(C) Remains unchanged because value depends on earnings and investment policy.
(D) Depends on the dividend payout ratio

Suggested Answer and Working Notes:

Correct Answer: Option (C)

Remains unchanged because value depends on earnings and investment policy.

Topics: Part-A: Financial Management

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