The Free Cash Flow Hypothesis Supports

question 22

Multiple Choice

The free cash flow hypothesis supports

• A)decreasing stockholder dividends to retain more cash within the firm.
• B)reducing a firm's level of debt to reduce the amount of cash used to pay interest.
• C)increasing the debt portion of a firm's capital structure to increase firm value.
• D)hiring managers with little or no stock ownership in the firm.
• E)the idea that firms with high levels of free cash flow are more apt to make good acquisitions than firms with low levels.

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Definitions:

Yearly Dividend

The total dividend payment a company distributes to its shareholders annually, often expressed as a per share amount.

Common Shares

Equity securities that represent ownership in a corporation, giving holders voting rights and a share in the company's profits through dividends.

Reinvesting

The action of using profits or dividends from investments to purchase additional shares or assets, aiming to increase future earnings.

Annual Dividend

The total amount of dividend payments made to shareholders over a one-year period.