Dividend irrelevance argument of MM Model is based on:

The correct answer is D. Arbitrage.

The Modigliani-Miller (MM) model is a financial model that states 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 is because investors can create their own optimal capital structure by buying and selling shares of the company’s stock and debt.

Arbitrage is the practice of buying and selling assets in different markets to profit from small differences in price. In the context of the MM model, arbitrageurs would buy shares of a company with a high debt-to-equity ratio and sell shares of a company with a low debt-to-equity ratio. This would drive the prices of the two companies’ shares

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, which means that the MM model is not always accurate. However, the MM model is still a useful tool for understanding the relationship between capital structure and firm value.

The other options are incorrect because they are not based on the MM model. Hedging is a technique used to reduce risk, issue of debentures is a way for a company to raise money, and liquidity is the ease with which an asset can be bought or sold.