The Free-Cash-Flow Theory of Takeovers Predicts That

question 112

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) all of these.

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Definitions:

Marginal Cost Curve

A graphical representation showing how the cost to produce one additional unit of output varies with the level of production.

Marginal Revenue Curve

A visual representation that shows the additional revenue generated by selling one more unit of a good or service.

Collude

To engage in a secret or illegal cooperation or conspiracy, especially in order to cheat or deceive others.

Perfectly Competitive

A market structure characterized by many buyers and sellers, freedom of entry and exit, homogeneous products, and perfect information.