Asked by Linda MyPhuong on May 22, 2024
Verified
Lenders compare their cash flow projections for a company to the firm's future dividend commitment as stated in the firm's dividend policy.
Dividend Policy
The strategy a company uses to decide how much it will pay out to shareholders in dividends.
Cash Flow Projections
Forward-looking estimates of the cash inflows and outflows over a certain period, used for budgeting and financial planning purposes.
- Appreciate the value of free cash flow in the context of valuation and the selection of investments.
- Acknowledge the relationship between cost of capital, earnings, and company valuation.
Verified Answer
TR
Taylor RankinMay 24, 2024
Final Answer :
False
Explanation :
Lenders compare their cash flow projections for a company to the firm's ability to make debt payments, not to its future dividend commitments.
Learning Objectives
- Appreciate the value of free cash flow in the context of valuation and the selection of investments.
- Acknowledge the relationship between cost of capital, earnings, and company valuation.
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