Under certain conditions-dividend policy is irrelevant

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Under certain conditions, dividend policy is irrelevant. What is it that they are specifically claiming to be irrelevant? Explain with the following example. Assume that a firm has $100,000 in assets at market value, no debt, and 100 shares outstanding. $10,000of the assets are in cash, which represents the recent net income of the firm. Now the firm can choose whether to pay out a 50% dividend that will require the issuance of $5,000 in new shares, or to pay no dividend and plow back all $10,000 of earnings into a project with an attractive NPV.

Reference no: EM131063494

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