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Based on the MM dividend-irrelevant theory: if the current stock price is P0 = $10, after announcement of $2 EPS, the stock price should immediately

Based on the MM dividend-irrelevant theory: if the current stock price is P0 = $10, after announcement of $2 EPS, the stock price should immediately jump to P1 = $12 if the firm retains $2. Which of the following can potentially invalidate the above line of reasoning?

  1. If the firm decides to pay $1 dividend per share right after the EPS announcement, the stock price should be $11.
  2. If the firm decides to pay $3 dividend per share right after the EPS announcement, the stock price should be $9.
  3. Dividend tax rate and capital gains tax rate both increase from 0% to 20%.
  4. Dividends are considered safer than capital gains, hence dividends are preferred

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