Question #6
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 3
Status: Unattempted
Question
If Modigliani and Miller's dividend irrelevancy theory is correct, what is the impact on a firm's cost of capital and stockholder wealth if its dividend payout increases? Cost of Capital Stockholder wealth
Answer Choices:
A. None A decrease
B. An increase A decrease
C. None None
Explanation
If investors do not consider dividends to be relevant, the dividend payout will not affect
the required rate of return. If the required rate of return does not change, stockholder
wealth will be unchanged despite the change in its dividend payout rate.