There was a question in one of the mocks about the effects of company’s FCFF with issuance of new debt and establishment of a new dividend.
I know dividends don’t affect FCFF, but I thought new debt would since we add back the after-tax interest expense (Int exp* (1-T)) to NI (or CFO depending on what’s given). In other words, more debt issued -> higher interest expense.
The answer says neither has any effect on FCFF. And of course, Schweser’s answer explanation simply repeats the question and answer.
What’s the story here? Thanks!