Free cash flow to firm & to equity (FCFF & FCFE)

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    thuha
    Participant
    • Topics: 6
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    Sir,

    Is FCFE = FCFF – Interest +/- debt drawdown/repayment?

    Your formular for FCF at page 56 of course note.
    FCF = EBIT – Tax on EBIT …
    ie apply tax rate on EBIT or EBT (deduct interest first before apply tax rate)?
    Since I saw an answer applying tax rate on EBT? Which one is correct?

    Looking forward to hearing from you. Many thanks
    Ha


    Avatar of johnmoffat
    John Moffat
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    The tax should normally be applied to EBIT. The reason is that you are then going to discount at the WACC, and the WACC takes into account the after tax cost of debt.


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    thuha
    Participant
    • Topics: 6
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    Thanks.

    How about my 1st question: FCFE = FCFF – Interest =/- debt drawdown/repayment?
    is that correct? since some question they wanted to value FCFF & some to value FCFE


    Avatar of johnmoffat
    John Moffat
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    Sorry. Yes – your first equation is correct.


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    thuha
    Participant
    • Topics: 6
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    I am highly appreciated your help to us. Thank you & thank Open tuition so much.


    Avatar of johnmoffat
    John Moffat
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    You are welcome :-)

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