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FCFE= Net Income( EBIT – Net Interest – Tax)
Add dep
Less Net Inv
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Why are some items not included in free cash flow. Example Dec 2002 question 79 in new kit ( march June 2017 – Intergrand), that excludes Redundancy cost, publicity benefit, investment in expansion. Can you clarify for me. Thank you.Using EBIT is one way of estimating the free cash flow if no other information is available. Otherwise, the free cash flows are the net cash flow each year calculated on exactly the same principles as when we calculate the net cash flow in a normal NPV question.
The redundancy etc. are one-off flows and have been incorporated in the adjusted present value calculation. However when calculating the free cash flows in the future years, they are not relevant in future years because they are not repeated.
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