Some researchers have argued that the existence of free cash flow can lead managers in a firm to make inappropriate acquisition decisions. To avoid these problems, these authors have argued that firms should increase their debt-to-equity ratio and “soak up” free cash flow through interest and principal payments. Is free cash flow a significant problem for many firms?
Answer to relevant QuestionsIf the order of analyses is important, which should come first: external analysis or internal analysis?Do firms with the following financial results have below normal, normal, or above normal economic performance?a. ROA = 14.3%, WACC = 12.8%b. ROA = 4.3%, WACC = 6.7%c. ROA = 6.5%, WACC = 9.2%d. ROA = 8.3%, WACC = 8.3%What are the strengths and weaknesses of increased leverage as a response to free cash flow problems in a firm?How would a firm’s investment in merger and acquisition strategies, on average, be expected to generate at least competitive parity for bidding firms?Are international organizational options for implementing an international strategy just special cases of the M-form structure, with slightly different emphases, or are these international organizational options ...
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