I understand most of the variations of this forumla with one exception: FCFE=NI-[(1-DR)*(FCInv-Dep)]-[(1-DR*WCInv)] Can anybody help me understand why it works this way? Thanks in advance.
Nevermind. I got it.
think i got it too, but i still agree with your first statement that it’s not very intuitive.
FCFE=NI+NCC-FCInv-WCInv+net borrowing So FCFE=NI-[(1-DR)*(FCInv-Dep)]-[(1-DR*WCInv)] The DR (debt ratio) tells us how much of FCInv and WCInv is going to be made up of debt - this is the last term in the first equation. NCC has to due with the Dep. I could spend a bunch of time getting it all figured out, but I don’t think its worth it. I understand enough of the logic to remember it now. Look right to you?
yep. looks good. just takes out the net borrowing. it’s actually intuitive if you look at it that way. thanks. it’s the little things, mwvt.