The firm possesses the required cash to pay dividend. If dividend is paid out of cash, money is transferred from one form, a claim on the company, to the other form, that is, cash in the shareholders’...

The firm possesses the required cash to pay dividend. If dividend is paid out of cash, money is transferred from one form, a claim on the company, to the other form, that is, cash in the shareholders’ hand. The value of shareholders’ wealth will remain the same, that is, equal to the sum of the value of their shares and the amount of cash dividend they receive.