Which of the following statements is (are) TRUE? Select one or more alternatives: According to the free cash flow hypothesis, firms should reduce their debt ratios to increase the amount of free cash flow available to invest in positive NPV projects. If a profitable firm increases its leverage, the market may perceive this as a positive signal about the firm. When a firm is in financial distress and defaults on its debt, there may still be a pathway for it to return to normal operations. Shareholders have an incentive to maximise financial distress costs because debtholders are the ones who bear the costs of financial distress.

Which of the following statements is (are) TRUE? Select one or more alternatives: According to the free cash flow hypothesis, firms should reduce their debt ratios to increase the amount of free cash flow available to invest in positive NPV projects. If a profitable firm increases its leverage, the market may perceive this as a positive signal about the firm. When a firm is in financial distress and defaults on its debt, there may still be a pathway for it to return to normal operations. Shareholders have an incentive to maximise financial distress costs because debtholders are the ones who bear the costs of financial distress