The Free Cash Flow Hypothesis States

question 34

Multiple Choice

The free cash flow hypothesis states:

• A) that firms with greater free cash flow will pay more in dividends reducing the risk of financial distress.
• B) that firms with greater free cash flow should issue new equity to force managers to minimize wasting resources and to work harder.
• C) that issuing debt requires interest and principal payments reducing the potential of management to waste resources.
• D) that issuing equity reduces the potential of management to waste resources.

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Definitions:

Neuritic Plaques

Deposits found in the brain that are characteristic of Alzheimer's disease, made up of degenerating nerve ends and amyloid protein.

Neurofibrillary Tangles

Aggregates of hyperphosphorylated tau protein found in neurons, associated with Alzheimer's disease and other neurodegenerative disorders.

Grid Cells

Specialized neurons in an area of the brain involved with navigation and spatial memory, which activate to form a virtual grid map of the surrounding area.

Entorhinal Cortex

A part of the brain located in the medial temporal lobe, playing a crucial role in memory and navigation.