Which statement is true?

Firms with more free cash flow should pay higher dividends thereby reducing the

risk of financial distress.

Firms with more free cash flow should issue new equity to help minimize the

wasting of resources by managers.

Issuing debt requires payments to creditors thereby reducing the ability of

managers to waste resources in firms with high level of free cash flows.

Firms should reduce their debt levels as their level of free cash flow rises.