Answer: are indifferent between cash dividends and share repurchases.

## Explanation Miller and Modigliani's **dividend irrelevance theory** argues that investors **are indifferent between cash dividends and share repurchases**. **Key principles of Miller-Modigliani (M&M) dividend irrelevance:** 1. **Perfect capital markets assumption:** No taxes, no transaction costs, symmetric information 2. **Investment policy is fixed:** The company's investment decisions are independent of dividend policy 3. **Value creation comes from investment decisions**, not financing decisions like dividends 4. **Investors can create their own dividend policy** by buying or selling shares **Why investors are indifferent:** - In a perfect market, the value of the firm depends only on its earning power and investment policy - A dollar paid as dividends reduces the stock price by exactly one dollar - Share repurchases reduce the number of shares outstanding but increase the value per share - The total wealth of shareholders remains the same regardless of the distribution method Options B and C represent other dividend theories (bird-in-hand preference and tax preference theories) that contradict M&M's irrelevance proposition.

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