Which one of the following might you recommend to a firm with excessive free cash flow?
A) Acquire a firm to diversify
B) Acquire a firm to bootstrap earnings
C) A leveraged buyout
D) A repurchase of shares

Question

Quizplus · Accepted Answer

Repurchasing shares is a good choice for a firm with excessive free cash flow as it can improve the value of the remaining shares by reducing the number of outstanding shares. This can also indicate to investors that the firm has confidence in its future prospects. Acquiring a firm to diversify or bootstrap earnings requires careful consideration and may not always be the best choice, while a leveraged buyout involves taking on debt, which may not be appropriate for a firm with excessive free cash flow.

Which One of the Following Might You Recommend to a Firm