Question #81
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 39
Status: Unattempted
Correct Answer: A
Question
In what ways are dividends different from free cashflow to equity (FCFE)?
Answer Choices:
A. There is no difference. Dividends must equal FCFE
B. Dividends are often viewed as "sticky." Managers are reluctant to radically change the dividend payout policy while FCFE often has immense variability
C. Companies often use FCFE as a signal of positive future growth prospects while dividends are not used for signaling
Explanation
Dividends and the FCFE are often different and dividends are used as a signal to the
market not FCFE. Dividends viewed as sticky is the true statement.