The correct answer is: A. MM
The Modigliani-Miller (MM) model is a financial model that argues that in a perfect market, the value of a company is not affected by its capital structure, which is the mix of debt and equity financing that a company uses. This means that the decision of whether to pay dividends or to reinvest earnings is irrelevant to the value of the company.
The MM model is based on a number of assumptions, including that there are no taxes, no transaction costs, and no asymmetric information. In reality, these assumptions do not hold true, so the MM model is not always accurate. However, it is still a useful tool for understanding the relationship between capital structure and firm value.
The MM model can be used to explain why companies sometimes pay dividends even though the MM model predicts that dividends are irrelevant. One reason is that companies may want to signal to investors that they are profitable and have excess cash. Another reason is that companies may want to avoid the costs of issuing new equity.
The MM model is a powerful tool for understanding the relationship between capital structure and firm value. However, it is important to remember that the MM model is based on a number of assumptions that do not always hold true in the real world.