Asked by Viviana Vergara on May 02, 2024
Verified
The announcement of an increase in the cash dividend should,according to MM,lead to an increase in the price of the firm's stock.
Cash Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
MM
The Modigliani-Miller theorem, a foundational concept in corporate finance proposing that under certain conditions, the value of a firm is unaffected by how it is financed.
Firm's Stock
The capital raised by a corporation through the issuance and subscription of shares representing ownership interest in the company.
- Identify the objectives and impacts of dividend policies on firm value and capital costs.
Verified Answer
MC
Mario CardenasMay 02, 2024
Final Answer :
False
Explanation :
According to Modigliani and Miller's dividend irrelevance theory, the announcement of an increase in the cash dividend should not affect the price of the firm's stock because investors are indifferent to whether they receive dividends or capital gains.
Learning Objectives
- Identify the objectives and impacts of dividend policies on firm value and capital costs.