Under Modigliani and Miller world, as the CEO of company, when you decided to distribute 1 Billion dollar cash, one of your shareholders, Mr. A, who purchased the stock on the ex-date, raised a concern that he will not be getting any dividend and he will be adversely affected by the distribution of the cash.

On the other hand, another shareholder, Mr. B, who was holding the stock before the ex-date argued that the earnings per share decreased and he is worse off because of the dividend payment.

What would be your answer to these shareholders? Do you agree or not agree with them? If you agree justify your answer. If you don't agree, again justify your answer.

Answer rating: 100% (QA)

Heres why MM Theory and Dividend Irrelevance The MM theory suggests that in a perfect capital market ... View the full answer