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What are two reasons stockholders might be indifferent between owning stock of a firm with volatile cash flows and that of a firm with stable cash flows?
Wiki User
∙ 13y ago
If the elimination of volatile cash flows through risk management techniques does not significantly change a firm's expected future cash flows and WACC, investors will be indifferent to holding a company with volatile cash flows versus a company with stable cash flows. Note that investors can reduce volatility themselves: (1) through portfolio diversification, or (2) through their own use of derivatives.
Wiki User
∙ 13y ago
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What are two reasons stockholders might be indifferent between owning the stock of a firm with volatile cash flows and that of a firm with stable cash flows?
Huh? Bill Gates might be indifferent if he has shares in a company with stable flows or erratic ones; he doesn't NEED the money. If he sells either at a loss that offsets other gains in income, so he gets a writeoff that makes the loss smaller, but still real. Maybe if you are very young and you figure you have 60 years before you'll be selling the stock, you might be indifferent. Perhaps the question could be clearer?
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