Dear Sir,
In calculating the FCFE of the Ndege Co, why has the interest payment of the loan that Ndege will take from Vogel not being calculated in the FCFE? Was it assumed that the entire debt would be repaid upon formation of the new company? (Ndege Co)
Thank you very much sir,
Ask the Tutor ACCA AFM
Vogel June 2015
9y ago#1But they have not taken the free cash flows to equity.
They have taken the free cash flows and discounted them at the cost of capital. We ignore interest when getting the free cash flows because it is effectively included in the cost of capital.
This gives the total value of the business. They have then subtracted the value of the loan to arrive at the value of the equity.
This topic is locked — no new replies.