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)The riskiest takeover candidates are those with large amounts of free cash flow.

Question

Quizplus · Accepted Answer

The free-cash-flow theory of takeovers predicts that firms with excess cash do not have a tendency to use it wisely, leading to potential acquisitions as a way to utilize their excess funds. Therefore, the answer is C, which suggests that firms with free cash flow may not use it wisely. The other options are not supported by the theory.

The Free-Cash-Flow Theory of Takeovers Predicts That