The Free Cash Flow Hypothesis Supports

question 43

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:

M1

A category of the money supply that includes all physical money like coins and currency, as well as demand deposits and other liquid assets held by the central bank.

Double Coincidence of Wants

A condition in barter economies where two parties each hold an item the other wants, making it possible for an exchange to occur without a common medium of exchange.

Barter Situation

A trade system where goods or services are exchanged directly for other goods or services without the use of money as a medium of exchange.

Commodities

Basic goods used in commerce that are interchangeable with other goods of the same type.