Companies, especially established corporations, set up a policy that is often called a dividend policy or a payout policy. These policies specify what companies intend to do with their profits and the free cash flow (FCF). The objective is to create a dividend policy that increases the value of the firm and maximizes shareholder wealth. Which of the following help firms determine the actual implementation of their dividend policy? Check all that apply The level of retained earnings to maintain The level of reinvestment in Treasury bills and bonds The method of payment to shareholders-cash or stocks The level of payout to shareholders that is sustainable in the future A firm can make any form of distribution to its shareholders using the free cash flow that it generates. The underlying objective is to maximize shareholder wealth by increasing the firm's value. Any use of the FCF that has a negative impact on the firm's value is not considered a good use of the FCF Which of the following uses is considered a good use of free cash flow? Choose the best answer. O Invest in nonoperating assets O Invest in operating assets Ignoring possible tax effects and signaling costs, the total value of a firm's equity remains the same irrespective of how the firm distributes its residual earnings-dividends or stock repurchases. Each distribution method has certain advantages and disadvantages. Based on your understanding of dividends and stock repurchases, select the best terms to go with the statements. Select the best term to complete the sentence Undervalued Overvalued Management is likely to repurchase stock if it believes that the stock is ?77?; this sends positive signals to investors. False True Repurchases allow a firm to buy back as much stock as it wants, at whatever price it wants, without affecting shareholders. This statement is 7777 True False Dividends provide signals about a firm's future prospects whereas some investors might misinterpret why a firm is repurchasing stock. This statement is 7777 Cash Additional stock Repurchases allow investors who need cash to convert their investment in the company into 7777