According to the free cash flow hypothesis that has been proposed to explain how dividend policies affect stock prices, cash flows that cannot be reinvested in positive net present value projects should be retained and reinvested by the firm.

Question

Quizplus · Accepted Answer

The free cash flow hypothesis suggests that cash flows that cannot be reinvested in positive net present value projects should be returned to shareholders, typically through dividends or share buybacks, rather than retained and reinvested by the firm.

According to the Free Cash Flow Hypothesis That Has Been