The Free Cash Flow Hypothesis States That

Multiple Choice

The free cash flow hypothesis states that:

A) firms with greater free cash flow will pay higher dividends thereby reducing the risk of financial distress.
B) firms with greater free cash flow should issue new equity to help minimize the wasting of resources by managers.
C) issuing debt requires payments to creditors thereby reducing the ability of managers to waste resources.
D) firms should reduce their debt levels as their level of free cash flow rises.
E) firms with higher levels of free cash flow should reward their managers with bonuses.