Which of the Following Might You Recommend to a Firm

question 2

Multiple Choice

Which of the following might you recommend to a firm with excessive free cash flow?

• A) Acquire a firm to diversify.
• B) Acquire a firm to bootstrap earnings.
• C) A leveraged buyout.
• D) A repurchase of shares.

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Definitions:

Residual Value

The estimated value that an asset will have at the end of its useful life.

Depreciation

The systematic allocation of the cost of a tangible asset over its expected useful life, reflecting its consumption, wear and tear, or obsolescence.

Accumulated Depreciation

The total amount of an asset's cost that has been allocated as depreciation expense over its useful life, reducing its book value on the balance sheet.

Asset

Tangible or intangible items of value owned or controlled by a person or company, capable of producing future economic benefits.