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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.

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โˆ™ 2011-02-25 01:44:53
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Q: 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?
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