In contrast to managers,shareholders may prefer that free cash flows be:

Question

Quizplus · Accepted Answer

Shareholders are owners of the company and therefore they may prefer that the excess cash be returned to them as dividends, increasing the value of their investment in the company. This is a common strategy for companies with mature business models that have already invested sufficiently in growth opportunities. Investing in municipal bonds or reducing corporate debt does not provide an immediate benefit to shareholders. Reinvesting in additional corporate assets may also be perceived as risky and potentially dilute the value of existing shares.

In Contrast to Managers,shareholders May Prefer That Free Cash Flows