CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

The MM dividend irrelevance argument states that dividend decision is independent of a company's:

I. operating decisions.
II. financing decisions.
III. investment decisions.
Correct Answer: II and III

User Contributed Comments 4

User Comment
StJohnDale Anyone know why?
arudkov i know about I: value of a firm depend on business risk. so - operating decisions DO matter. but investment do so 2.
hmm..
ericczhang MM Dividend irrelevance basically says dividend policy does not affect Firm (Securites)Value.

If dividends don't affect firm (securities) value, a firm paying dividends have the same cost of capital as an identical firm not paying dividends. In this case dividends do not affect a firm's financing decision.

If dividends don't affect cost of capital, then they have no effect on how firms make investment decisions.
PJMOHAN The MM Dividend irrelevance theory assumes that the Co has a given capital budget and that its current capital structure and debt ratio are optimal.Another way of stating this is that the div decision is independent of investing and financing decision. (Curriculum - Page 130 last para)
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