The Way a Firm Chooses Between Alternate Uses of Free

question 88

Multiple Choice

The way a firm chooses between alternate uses of free cash flow is referred to as:

• A)retention ratio.
• B)payout policy.
• C)call policy.
• D)debt policy.
• E)investment policy.

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Definitions:

Discounted Payback Period

The time period needed to recover the cost of an investment when considering the time value of money through discounted cash flows.

Cash Inflows

The total amount of money being transferred into a business, typically from operational, financing, and investment activities.

Required Rate

The minimum annual rate of return that an investor expects to achieve on an investment.

After-tax Cash Inflows

The amount of cash generated from any business activity after accounting for taxes.