The correct answer is: A. the value of the firm depends upon earning power.
The MM Model, or Modigliani-Miller Model, is a theory of corporate finance that argues that the value of a firm is not affected by its dividend policy. The model assumes that there are no taxes, no transaction costs, and perfect capital markets. In this case, investors are indifferent between dividends and capital gains, and the firm’s value will be determined by its earning power.
Option B is incorrect because investors may buy shares for both capital gains and dividends.
Option C is incorrect because dividends are paid out of after-tax earnings.
Option D is incorrect because dividends can be a significant amount of money.
For example, in 2021, Apple Inc. paid out $102.8 billion in dividends. This was equivalent to 25.5% of the company’s net income.