Answer: are indifferent between cash dividends and share repurchases.

## Explanation Miller and Modigliani's dividend irrelevance theory states that in a perfect capital market (without taxes, transaction costs, or information asymmetry), investors are indifferent between receiving dividends and capital gains. This is because: - **Dividend irrelevance**: The value of a firm is determined by its earning power and investment policy, not by its dividend policy - **Homemade dividends**: Investors can create their own dividend policy by selling shares if they want cash, or reinvesting dividends if they want growth - **No preference**: In perfect markets, a dollar of dividends is equivalent to a dollar of capital gains **Why other options are incorrect:** - **Option B**: This contradicts Miller and Modigliani's theory, as they argue investors are indifferent, not that they prefer dividends - **Option C**: This relates to tax clientele effects, which Miller and Modigliani did not address in their original theory (they assumed perfect markets without taxes) **Key Insight**: Miller and Modigliani's theory is foundational in corporate finance, establishing that dividend policy doesn't affect firm value in perfect capital markets.

Author: LeetQuiz .