Equity value FCFF - Debt*

When calculating equity value from fcff and the question requires you to discount future fcffs at WACC and then subtract the firms debt to get the value of equity. Is the debt that you subtract

a) market value of debt

b) Book value of long ter debt

c) book value of total liabilities


V(E)= firm value - MV (D).

_ Note: If the firm has preferred stock: _

  1. Revise WACC: wE*rE + wD*rD*(1-t) + wPS*rPS

  2. Adjust FCFF: + preferred dividends (we assume that NI was the NI to common shareholders, that is, after preferred dividends were deducted)

V(E) = firm value - MV(D) - preferred stock

For the sake of completeness:

Adjust FCFE (when the firm has preferred stock): modify net borrowing (i.e. new debt borrowing/net issuing by the amount of preferred stock)

Great thanks

for FCFE= FCFF - int(1-t) - preferred divident + net borrowing + issuance of Preffered stock? using the same treatment as we did for debt ?

I would have done it like as you said:

FCFE = FCFF - int*(1-t) - preferred dividends (we treat them like debt) + net borrowing + issuance of preferred stock

Anybody elese who can confirm it, just to be sure?