The Free Cash Flow Hypothesis States

question 21

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

Understand the impact of leadership on group and organizational effectiveness.

Appreciate the complexity and challenges in defining and studying leadership.

Recognize the significance of context in leadership effectiveness.

Understand the role of leader and follower interaction in shaping leadership outcomes.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating its sensitivity to market movements.

Risk-Adjusted Performance

A method to measure an investment's return by taking into account its risk exposure, giving a more accurate depiction of performance.

Eugene Fama

An American economist and Nobel laureate known for his work on the efficient-market hypothesis.

Risk-Adjusted Performance

A measure of how much risk is involved in producing a financial return, used to compare the performance of investment portfolios.