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Solving the questions using the free cash flow hypothesis

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Reference no: EM131690068

Question: Answer true or false to the following questions relating to the free cash flow hypothesis (as developed by Jensen).

a. Companies with high operating earnings have high free cash flows.

b. Companies with large capital expenditures, relative to earnings, have low free cash flows.

c. Companies that commit to paying a large portion of their free cash flow as dividends do not need debt to add discipline.

d. The free cash flow hypothesis for borrowing money makes more sense for firms in which there is a separation of ownership and management.

e. Firms with high free cash flows are inefficiently run.

Reference no: EM131690068

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