Question… FCFF is the total value of the firm, the available cf to debt and equity holders, right? FCFE is to equity… and we can find the value of stock using FCFE. My question is, can we find the value of the issuer’s bond using FCFF? what if company can’t cover their payments, whats the value of bond???
In a default situation, a very coarse assumption is that you recover 40% of the value of the assets. That value will trickle down the creditor’s priority order. See e.g. http://en.wikipedia.org/wiki/Bankruptcy
thanks!! so i can use FCFF, and apply 40% recovery and that amt will go to bondholders?