1. Dividend policy and free cash flow Aa Aa Companies, especially established corporations, set up a policy that is often called a distribution policy or a payout policy. These policies specify what companies intend to do with their profits and the free cash flow (FCF). The objective is to create a distribution policy that increases the value of the firm and maximizes shareholder wealth. Which of the following help firms determine the actual implementation of their distribution policy? Check all that apply. The level of reinvestment in Treasury bills and bonds X The level of payout to shareholders that is sustainable in the future X The level of retained earnings to maintain
1. Dividend policy and free cash flow Aa Aa Companies, especially established corporations, set up a policy that is often called a distribution policy or a payout policy. These policies specify what companies intend to do with their profits and the free cash flow (FCF). The objective is to create a distribution policy that increases the value of the firm and maximizes shareholder wealth. Which of the following help firms determine the actual implementation of their distribution policy? Check all that apply. The level of reinvestment in Treasury bills and bonds X The level of payout to shareholders that is sustainable in the future X The level of retained earnings to maintain
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
please answer all questions
Transcribed Image Text:1. Dividend policy and free cash flow
Aa Aa
Companies, especially established corporations, set up a policy that is often called a distribution policy or a payout
policy. These policies specify what companies intend to do with their profits and the free cash flow (FCF). The
objective is to create a distribution policy that increases the value of the firm and maximizes shareholder wealth.
Which of the following help firms determine the actual implementation of their distribution policy? Check all that
apply.
O The level of reinvestment in Treasury bills and bonds
X The level of payout to shareholders that is sustainable in the future
The level of retained earnings
maintain
The method of payment to shareholders-cash or stocks
A firm can make any form of distribution to its shareholders using the free cash flow that it generates. The underlying
objective is to maximize shareholder wealth by increasing the firm's value. Any use of the FCF that has a negative
impact on the firm's value is not considered a good use of the FCF.
Which of the following uses is considered a good use of free cash flow? Choose the best answer.
Make payments toward capital expenses
Pay principal on debt
A company's investment opportunities and operating plans determines its level of FCF which can be used to distribute
dividends to repurchase stock. This process is pretty straight forward in most companies across industries. This
statement is false, because sometimes the dividend distribution policy determines if the company is likely to scale
back their operating and growth plans to
maintain
existing dividend policy.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education