Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Free cash flow to firm & to equity (FCFF & FCFE)
- This topic has 5 replies, 2 voices, and was last updated 11 years ago by John Moffat.
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- November 28, 2012 at 1:20 pm #55873
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
HaNovember 28, 2012 at 6:55 pm #109116The 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.
November 29, 2012 at 2:09 am #109117Thanks.
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 FCFENovember 29, 2012 at 8:13 pm #109118Sorry. Yes – your first equation is correct.
December 1, 2012 at 3:07 am #109119I am highly appreciated your help to us. Thank you & thank Open tuition so much.
December 1, 2012 at 6:23 pm #109120You are welcome 🙂
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