Answer: Company C.

## Explanation Option C is correct - Company C has the greatest dividend safety based on the FCFE coverage ratio. **FCFE Coverage Ratio Calculation:** The FCFE coverage ratio measures dividend safety by comparing Free Cash Flow to Equity (FCFE) to total cash distributions (dividends + share repurchases). **Formula:** \[ \text{FCFE Coverage Ratio} = \frac{\text{FCFE}}{\text{Dividends + Share Repurchases}} \] **Where:** \[ \text{FCFE} = \text{Cash Flow from Operations} - \text{Capital Expenditures} + \text{Net Borrowing} \] **Calculations:** **Company A:** - FCFE = 745 - 315 + (-100) = 330 - Total Distributions = 135 + 65 = 200 - FCFE Coverage Ratio = 330 / 200 = 1.65 **Company B:** - FCFE = 810 - 432 + (-250) = 128 - Total Distributions = 40 + 70 = 110 - FCFE Coverage Ratio = 128 / 110 = 1.16 **Company C:** - FCFE = 295 - 75 + (-85) = 135 - Total Distributions = 45 + 50 = 95 - FCFE Coverage Ratio = 135 / 95 = 1.42 **Analysis:** - **Company C** has the highest FCFE coverage ratio (1.42) - **Company A** has 1.65 (higher than C), but wait - let's verify: - Company A: 330/200 = 1.65 ✓ - Company C: 135/95 = 1.42 ✓ **Correction:** Actually, Company A has the highest FCFE coverage ratio (1.65), not Company C. Let me recalculate: **Final Calculations:** - **Company A**: FCFE = 745 - 315 - 100 = 330; Coverage = 330/(135+65) = 330/200 = 1.65 - **Company B**: FCFE = 810 - 432 - 250 = 128; Coverage = 128/(40+70) = 128/110 = 1.16 - **Company C**: FCFE = 295 - 75 - 85 = 135; Coverage = 135/(45+50) = 135/95 = 1.42 **Company A has the highest FCFE coverage ratio (1.65), making it the company with the greatest dividend safety.** **Answer should be A, not C.**

Author: LeetQuiz Editorial Team