Free cash flow and financing

Hi All,

Couldn’t get through one question and was hoping that you could kindly help.

I am calculating free cash flow to firm and free cash flow to equity for a firm that is about to go public. The size of the IPO is certain, say $100, and $70 will be used for CAPEX in next year and $30 will be added to cash.

I believe the $70 CAPEX should be subtracted from EBITDA/CFO or whatever that represents operating cash flow when I calculate the FCFF/FCFE. Should I add the amount of proceeds from IPO to FCFF/FCFE? What if it was a debt raising rather than IPO? Or what is the adjustment I should make in this case?

The standard formulae do not involve this financing component but I cannot understand why the financing shouldn’t be added to FCFF/FCFE. It seems like, if I subtract the CAPEX without adding the financing component, I will not be entitled to the upside (money from the financing) but need to suffer the downside (pretend that the CAPEX will be funded by operating cash flow and thus severely decrease the value of the firm). If the CAPEX is very expensive, the first few free cash flows will become very negative and significantly reduce the firm value.

Thank you in advance.