How do you deal with preffered stock in these calculations? Specifically how do you deal with preffered dividends and an increase/drecrease in preffered issuance. Thanks
Treat preferred stock like debt, except preferred stock are not tax-deductible. Preferred dividends are added back to FCFF. This is assuming that Net Income calculated is to equity shareholders after dividends have been subtracted out. FCFF = NI + NCC + Int(1-tax rate) + preferred dividends - FCInv - WCInv The only adjustment to FCFE would be modify net borrowing to reflect new issuance by the amount of preferred stock. FCFE = FCFF - Int(1-tax rate) - preferred dividends + Net borrowing + Net issuance of preferred stock http://www.analystforum.com/phorums/read.php?12,1132255