Free Cash Flow Is the Amount of Cash That,if Withdrawn,would

question 106

True/False

Free cash flow is the amount of cash that,if withdrawn,would harm the firm's ability to operate and to produce future cash flows.

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Definitions:

Dividend Irrelevance Theory

A theory suggesting that the dividend policy of a company is irrelevant to its value or the cost of capital and investment decisions.

"Bird in the Hand" Theory

The investment theory suggesting that investors prefer the certainty of dividend payments over potential capital gains because of the perceived lower risk.

Clientele Effect

The theory that firms attract equity investors at least in part because of their dividend-paying policies. The firm has a “clientele” of stockholders whose need for current or deferred income matches the firm’s dividend practices. The implication is that it isn’t a good idea to change dividend policies because such a change is bound to displease most stockholders.

Dividends

Payments made to shareholders out of a company's profits.