Work Sheet 10. Free cash flow and takeovers. According to Michael Jensen, shareholders are concerned about...

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Work Sheet 10. Free cash flow and takeovers. According to Michael Jensen, shareholders are concerned about leaving too much free cash flow inside the firm, and prefer paying excess cash as dividends than piling it up inside the firm. When shareholders see too much cash inside the firm, they will attempt a takeover to replace entrenched management. So, theory predicts that the level of takeover threat influences firms' level of free cash flow. Free cash flow/ asset (%) 35 30 25 Delaware Non Delaware 20 15 10 เก 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year Based on the plot above, what is the net effect of takeover threat on firms' free cash flow (i.e., how much does the presence of takeover threat increases or decreases free cash flow divided by assets)? Describe what method you used and why it measures the impact of takeover threat on free cash flow (e.g., what was the legal change, how it changed the takeover threat, and how this impacts free cash flow). Work Sheet 10. Free cash flow and takeovers. According to Michael Jensen, shareholders are concerned about leaving too much free cash flow inside the firm, and prefer paying excess cash as dividends than piling it up inside the firm. When shareholders see too much cash inside the firm, they will attempt a takeover to replace entrenched management. So, theory predicts that the level of takeover threat influences firms' level of free cash flow. Free cash flow/ asset (%) 35 30 25 Delaware Non Delaware 20 15 10 เก 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Year Based on the plot above, what is the net effect of takeover threat on firms' free cash flow (i.e., how much does the presence of takeover threat increases or decreases free cash flow divided by assets)? Describe what method you used and why it measures the impact of takeover threat on free cash flow (e.g., what was the legal change, how it changed the takeover threat, and how this impacts free cash flow).

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we can observe the trend of firms free cash flow divided by assets over time To analyze the net effect of takeover threat on firms free cash flow we n... View the full answer