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Sir
For appraisal questions we are not supposed
To deduct interest because interest is already factored into the discount factor right.
And for free cash flow to equity in the pro-forma it shows interest has to be deducted.
So most questions that I did I never deducted Interest but for finding dividend capacity there was one question where I deducted the interest to get free cash flow to equity
Now In the question burung of June 14 it’s apv question.. where we find ke and multiply with fcf to equity so I was thinking should we not deduct interest? And for question Vogel.. June 14..department b profit we take pbit again I was thinkng of interest deduction can you please clarify my doubt is for free cash flow to equity we need to deduct interest rightCorrect.
The free cash flow to the firm is the cash available for both debt and equity and so it discounted at the WACC (which is the cost of capital for equity and debt).
The free cash flow to equity is the cash available just for the equity (and so is after subtracting the debt interest) and is discounted at the cost of equity,
Sir ..
So that means for the question burung which is an apv question..
We take fcfe and discount with ungeared cost of equity.. so in that question why don’t we deduct interest?
We do the financing effects.. and do calculations for interest on that.. is that the reason ?
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