Three of the Following Considerations May Suggest That the Firm

question 60

Multiple Choice

Three of the following considerations may suggest that the firm should start paying out cash to its shareholders.Which one is not a relevant consideration?

• A) Is the company generating positive free cash flow?
• B) The company is earning a high profit margin?
• C) Does the company have sufficient cash for emergencies and unexpected investment opportunities?
• D) Is the debt ratio prudent?

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Definitions:

Forward Rate

The exchange rate specified in a forward exchange contract.

Premium

An amount paid for an insurance policy or an amount paid above the face value of a bond.

Cash Flow Hedge

A hedge of the exposure to the variability in cash flows that is attributable to a particular risk that is associated with all, or some component of, a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.

Forward Contract

A customized contract between two parties to buy or sell an asset at a specified price on a future date.