The Free-Cash-Flow Theory of Takeovers Predicts That

question 70

Multiple Choice

The free-cash-flow theory of takeovers predicts that:

• A)Firms without free cash flow will become the most common LBOs.
• B)Firms with free cash flow will continue to be the acquirers.
• C)Firms with excess cash do not have a tendency to use it wisely.
• D)The riskiest takeover candidates are those with large amounts of free cash flow.

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Definitions:

Income Approach

A method of calculating GDP by adding up all incomes within the economy, including wages, interest, profits, and rents.

Expenditures Approach

A method of calculating a country's Gross Domestic Product (GDP) by summing all its spending on final goods and services during a specific period.

Real GDP

The measure of the value of all final goods and services produced within a country in a specified period, adjusted for inflation, reflecting the true economic health of a country.

Inflation

The upward trend in the average pricing of goods and services, narrowing the scope of purchasing capacity.