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

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November 28, 2012 at 1:20 pm #55873
thuha
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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
November 28, 2012 at 6:55 pm #109116
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.
November 29, 2012 at 2:09 am #109117
thuha
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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
November 29, 2012 at 8:13 pm #109118
John Moffat
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Sorry. Yes – your first equation is correct.
December 1, 2012 at 3:07 am #109119
thuha
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I am highly appreciated your help to us. Thank you & thank Open tuition so much.
December 1, 2012 at 6:23 pm #109120
John Moffat
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You are welcome 🙂
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