So… FCFE = FCFF + net borrowing - Int (1-t) schweser talks about 2 strategies to forecast future FCFE. 1. simply make an estimate for g (growth) 2. make estimates for key variables (sales, margins etc) and discount FCFE. In the 2nd method, to maintain capital structure, reduce (rather increase free cash flow) fixed capital costs and working capital costs with the debt portion. so: FCFE = NI - [(1 - debt ratio) x (FCinv - Dep - WCinv)] Can someone for the life of me please tell me why interest expense is not reduced in this case? I understand why net borrowing is not included since you’re already accounting for it with the debt ratio. Thanks in advance!!!
devsathe Wrote: ------------------------------------------------------- > so: > > FCFE = NI - [(1 - debt ratio) x (FCinv - Dep - > WCinv)] > I see this formula on page-217 FCFE = NI - [(1 - debt ratio) x (FCinv - Dep - WCinv)] - [(1 - debt ratio x WCinv)]
net income already reflects the interest expense.
@dinesh - I just wrote the condensed formula, I think its the same thing. @cfasf1 - bloody hell, i feel like shooting myself! Thanks!!!
no worries. i do that all the time when i’m studying. as long as we don’t do it in june, we’re in good shape.
Since FCFF=NI+Dep+Int(1-T)-FCinv-WCinv and FCFE=FCFF-Int(1-T)+Net borrowing when you arriving FCFE=NI+Dep-FCinv-WCinv+Net borrowing which is essentially equivalent to FCFE=NI-(1-DR)x(FCinv-Dep)-(1-DR)xWCinv (1-DR)x(FCinv-Dep) is net capital exp hope this helps