The MM hypothesis of the irrelevance of dividends is based on which of the following critical assumptions?

A. investors are able to forecast future prices and dividends with certainty

B. The firm has a given investment policy which does not change

C. All financing is done through retained earnings

D. There are not taxes

E. Perfect capital markets in which all investors are rational

Choose the correct answer from the option given below:

Correct option is C

Investors are able to forecast future prices and dividends with certainty: This assumption implies that investors have perfect foresight and can accurately predict the future prices and dividends of a stock. It is not a critical assumption of the MM hypothesis. B. The firm has a given investment policy that does not change: This assumption suggests that the firm's investment decisions are independent of its dividend policy. It is a critical assumption of the MM hypothesis. D. There are no taxes: This assumption assumes the absence of taxes on dividends, capital gains, or any other financial transactions. It is a critical assumption of the MM hypothesis. E. Perfect capital markets in which all investors are rational: This assumption assumes the presence of perfect capital markets without any transaction costs, information asymmetry, or market imperfections. It is a critical assumption of the MM hypothesis.