According to the Free Cash Flow Hypothesis That Has Been

question 34

Multiple Choice

According to the free cash flow hypothesis that has been proposed to explain investors' reactions to dividend policy changes, a firm:

• A)should distribute earnings based solely on investors' preferences; i.e., whether they prefer current income or future income.
• B)should pay out all earnings that it can reinvest in acceptable capital budgeting projects.
• C)should pay dividends when it has cash flows that exceed its capital budgeting needs.
• D)that retains free cash flows has a higher value than a firm that distributes its free cash flows to stockholders.
• E)should never distribute its free cash flows, because these funds represent money the firm is free to invest as it pleases .

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Definitions:

Mathematical Procedures

Systematic, step-by-step algorithms or methods used to solve mathematical problems or perform mathematical operations.

Customer Service Requirements

Specifications or expectations that outline the service standards a business must meet to satisfy its customers.

Fulfillment Model

The process or system by which orders are received, processed, and delivered to customers, covering inventory management, warehousing, and logistics.