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      Question

      According to Modigliani-Miller theory, if a firm’s

      investment policy is fixed, how does dividend decision affect the value of the firm?
      A Positively Correct Answer Incorrect Answer
      B Negatively Correct Answer Incorrect Answer
      C No effect Correct Answer Incorrect Answer
      D Depends on capital structure Correct Answer Incorrect Answer

      Solution

      According to the MM Hypothesis, in a perfect capital market, dividend policy is irrelevant to firm value.

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