Firms incur various legal and administrative costs (called flotation costs) when they issue new stock. Based on the factor given, identify whether firms, in general, will tend to favor high or low payout ratios. Favor a low payout Favor a high payout Erin and Mia are finance researchers and are discussing the Modigliani and Miller (MM) dividend irrelevance theory. Based on your understanding of MM's argument and the impact of the assumptions applied to the argument, fill in the missing parts of their conversation. Erin Modigliani and Miller (MM) dividend irrelevance theory is based on several assumptions. However, in the real world, these assumptions don't apply. Mia True. If the transaction cost assumption is removed, then investors do care about how they receive their gains from their investment capital gains or dividends. Erin You are right, Mia. According to MM's theory, investors who own low- or nondividend-paying stocks could their holdings to satisfy current income requirements. But in the real world, will Erin, this is not a fair assumption. Transaction costs with each trade activity will the investor's earnings leading investors toward preferring regular dividends