The Free Cash flOw Hypothesis States

Multiple Choice

The free cash flow hypothesis states:

A) that firms with greater free cash flow will pay more in dividends reducing the risk of financial
Distress.
B) that firms with greater free cash flow should issue new equity to force managers to minimize
Wasting resources and to work harder.
C) that issuing debt requires interest and principal payments reducing the potential of
Management to waste resources.
D) Both A and C.
E) Both B and C.