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.