Which of the following statements is true about the free cash flow hypothesis?

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Which of the following statements is true about the free cash flow hypothesis?

Select one:

a. Firms should distribute earnings based on investors’ preferences toward current income and future income.

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b. Firms should distribute earnings that can be reinvested at a very profitable rate.

c. Firms should pay dividends when free cash flows in excess of capital budgeting needs exist.

d. Firms that retain free cash flows have higher values than firms that distribute free cash flows.

e. Firms should never distribute their free cash flows.

 

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