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 save the cash currently being spent on interest payments.
C)increasing the debt portion of a firm's capital structure.
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 reduce the amount of free cash flow available to managers, thus reducing the potential for wasteful spending and encouraging more disciplined financial management.

The Free Cash Flow Hypothesis Supports