You have been retained by Hayek & Company to recommend a distribution system template for projected...

You have been retained by Hayek & Company to recommend a distribution system template for projected free cash flow of +79.0, -38.8, +188.7, -5.4, and 6.7 over the 2016–2020-time period. What 10 questions do you need to pose to the C-Suiteand the board to make a free cash flow distribution decision that is satisfactory to all involved? Be as specific as needed.

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Expert Solution

Based on the information provided in the question, it can be seen that the cash flows are not consistent over the period 2016 - 2020. Out of the five years, three years have negative cash flows and two years have positive cash flows. The following questions can be posed to C-Suite and the board to make a free cash flow distribution decision that is satisfactory to all involved:

1) Does the company has debt in its capital structure?

2) If answer to question 1 is Yes, how does the company plan to reduce the proportion of debt with the use of free cash flows?

3) Does the company has any dividend distribution policy? What is the dividend payout ratio?

4) If answer to question 3 is yes, how does the company plan to pay for dividends particularly in the years with negative cash flows?

5) Does the company has any expansion plans?

6) If the answer to question 6 is yes, how does the company plan to retain its earnings/cash flows to meet the expansion requirements?

7) Does the company plan to raise funds through new debt in the near future?

8) If the answer to question 7 is yes, how does the company plan to mitigate its financial risk associated with inclusion of more debt?

9) Does the company plan to raise funds through equity in the near future?

10) If the answer to question 8 is yes, will the company maintain the same dividend payout ratio or will change its dividend distribution policy?

jeff jeffy answered 1 year ago

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