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November 17, 2019 at 11:37 am
Hello Sir, I’m unable to understand, why we add cash from debt issues to free cash flows to equity. I mean it would add to the company’s cash, but it belongs to the debt lenders, not the equity holders of the firm, as it will be repaid ultimately?
November 25, 2019 at 6:37 am
John Moffat says
November 25, 2019 at 7:40 am
The cash does not ‘belong’ to the lenders – it belongs to the company and they can do what they want with it. Obviously the lenders will receive interest and eventually receive repayment and therefore the company has less cash available in the years when interest is paid and in the year when repayment is made.
November 26, 2019 at 8:01 am
Okay, so it’s basically, who currently has the right to that cash. Thankyou John 🙂
November 26, 2019 at 8:17 am
You are welcome 🙂
November 10, 2019 at 3:38 pm
Good day Mr John,
Thank you for the wonderful lectures!
I need a clarification on the Amount needed to replace non-current assets when calculating the free cash flows.
I was solving Question 1c of December 2018 on Opao co and Tai co, in arriving at the free cash flow to Firm and Equity, I deducted the amount needed to replace non current asset which I assumed to be the same as depreciation; however, in the solution it was not deducted, it was only added to the PBIT to arrive at the Operating cash flow.
Please, can you explain why it was not added or just because it was not mentioned in the question that non-current assets will be replaced, I should have just ignored it?
November 10, 2019 at 7:57 pm
In future please as is kind of question in the Ask the Tutor Forum, and not as a comment on a lecture 🙂
However I am not sure that I understand you because the examiners answer has subtracted the amount needed to replace non-current assets in arriving at the free cash flows.
November 15, 2019 at 3:05 pm
Thank you for the feedback and apologies for breaking a ground-rule.
November 16, 2019 at 10:06 am
January 13, 2019 at 1:14 pm
Regarding the combined asset beta I understand it is a weighted average of the combined company, my question is if it is a weighted average of debt and equity or a weighted average of just the value of equity, or can you use either?
January 13, 2019 at 3:23 pm
The examiner has not been consistent on this, but best is to use the equity (because it is the equity that carries the risk).
November 6, 2018 at 2:49 pm
Thank you John, for the video lectures, just want to clarify something,
when do we use this proforma; FCFE= EBIT- (tax on EBIT)- interest +non cash items-cash required for capital expenditure -/+ working capital changes?
and when do we use this one, FCFE= EBIT-tax + non cash items – cash required for capital expenditure -/+working capital changes – interest-loan required?
do these proformas give the same answers?
August 26, 2018 at 11:19 pm
I suddenly got very confused…which market value would one pay for a company, the value of the firm or value of equity?
August 27, 2018 at 8:28 am
It depends what you are buying!! Whether you are buying just the equity or the whole business (including the debt).
August 27, 2018 at 10:23 am
Thank you for your reply. So in the case of the “asset stripper” you mentioned, they would only acquire the asset but not the debt?
Am I worrying about something that isn’t relevant to the exam? 🙂
August 27, 2018 at 7:24 pm
That would normally buy the whole business (including the debt) but only if the thought that could sell the assets, repay the debt, and still end up with more than they paid.
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