The free cash flow hypothesis supports
A)decreasing stockholder dividends to retain more cash within the firm.
B)reducing a firm's level of debt to reduce the amount of cash used to pay interest.
C)increasing the debt portion of a firm's capital structure to increase firm value.
D)hiring managers with little or no stock ownership in the firm.
E)the idea that firms with high levels of free cash flow are more apt to make good acquisitions than firms with low levels.

Question

Quizplus · Accepted Answer

The free cash flow hypothesis suggests that increasing debt can discipline management by reducing free cash flow, thus potentially increasing firm value by preventing wasteful spending.

The Free Cash Flow Hypothesis Supports