Can anyone help me with these two questions ? I'll appreciate a lot

What are your thoughts on these?

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I wonder a bit with B and C in question 23
Question 24 I think it is C because FCFE is the estimate to value common equity of a firm.
Am I right sir ?

Could you please help me sir ? :frowning:

The key term in the first question is “operating cash flow” which removes any impact of financing from the valuation process with FCFF. A is incorrect because operating cash flow is after capital expenditures. C is incorrect because we are looking for interest payments to add back, not total debt service.

The point of a FCFF valuation is to remove the capital structure from the process so you are valuing an unlevered enterprise to arrive at enterprise value. How you arrive there is to remove any impact from financing which is primarily the interest incurred. In practice, this is done starting with operating income which is calculated before interest expense.

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You explain very clearly. Thank you so much.

Could you explain the second solution for me sir ?

B is the correct answer to the second question. With the FCFE approach you need to figure out the cash flow that is available to the equity holders. To get there you need to consider the levered cash flows which include debt service (p&i) as well as preferred dividends since those are also paid out before common equity gets its share of the cash flow.

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Thanks for your help ^^