FCFF

I’m not sure why FCFF wouldn’t change when new debt is issued. If you issue new debt, wouldn’t your interest expense increase? Thereby affecting your FCFF when you add back the interest expense…?

FCFF is the cash flows before financing expenses (debt or equity). The interest expense is added back to Net Income because it was previously removed when moving from EBIT to EBT. It’s probably conceptually easier to see by calculating FCFF from EBIT, since you won’t make any interest adjustments. It WILL affect FCFE, since that is the measure of CF left over after debt holders are compensated.

interest expense increase but net income decreases (remember that net income is after tax and interest figure) so no change at all.

Aha! Makes perfect sense now. Thank you much!