{"id":47198,"date":"2024-04-15T22:23:20","date_gmt":"2024-04-15T22:23:20","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=47198"},"modified":"2024-04-15T22:23:20","modified_gmt":"2024-04-15T22:23:20","slug":"which-of-the-following-is-the-assumption-of-the-mm-model-on-dividend-policy","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-is-the-assumption-of-the-mm-model-on-dividend-policy\/","title":{"rendered":"Which of the following is the assumption of the MM model on dividend policy?"},"content":{"rendered":"<p>[amp_mcq option1=&#8221;The firm is an all-equity firm&#8221; option2=&#8221;The investments of the firm are financed solely by retained earnings&#8221; option3=&#8221;The firm has an infinite life&#8221; option4=&#8221;None of the above&#8221; correct=&#8221;option3&#8243;]<!--more--><\/p>\n<p>The correct answer is C. The firm has an infinite life.<\/p>\n<p>The Modigliani-Miller (MM) model is a theory that states that the value of a firm is not affected by its dividend policy. This means that whether a firm pays out its earnings as dividends or reinvests them in the firm, the value of the firm will be the same.<\/p>\n<p>The MM model makes a number of assumptions, including that the firm has an infinite life. This assumption is necessary in order for the model to hold true. If the firm has a finite life, then the value of the firm will be affected by its dividend policy, as the firm will need to pay out its earnings before it goes out of business.<\/p>\n<p>The other options are not assumptions of the MM model. Option A is not an assumption of the MM model, as the firm can be financed by debt or equity. Option B is not an assumption of the MM model, as the firm can invest in assets other than retained earnings. Option D is not an assumption of the MM model, as the firm can have a finite life.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>[amp_mcq option1=&#8221;The firm is an all-equity firm&#8221; option2=&#8221;The investments of the firm are financed solely by retained earnings&#8221; option3=&#8221;The firm has an infinite life&#8221; option4=&#8221;None of the above&#8221; correct=&#8221;option3&#8243;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[945],"tags":[],"class_list":["post-47198","post","type-post","status-publish","format-standard","hentry","category-financial-management","no-featured-image-padding"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.2 (Yoast SEO v23.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Which of the following is the assumption of the MM model on dividend policy?<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-is-the-assumption-of-the-mm-model-on-dividend-policy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Which of the following is the assumption of the MM model on dividend policy?\" \/>\n<meta property=\"og:description\" content=\"[amp_mcq option1=&#8221;The firm is an all-equity firm&#8221; 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