I think this question is a dud. Which of the following is least likely one of the differences between FCFE and FCFF? FCFF includes adjustments to revenue for: A) working capital investment. B) interest payments to bondholders. C) operating expenses
i might say (a). It’s which is least likely a difference between FCFF and FCFE - in regards to working capital investment, would this amount not be the same for both FCFF and FCFE? And therefore, its not a “difference” between the 2?
I would say B. FCFF includes ajustments to interest payment to bondholders. If you think about it, they both subtract Wcinv and operating expense, but FCFF includes an adjustment to cash flow cause it assumet that interest payments have not been made to bondholders.
Has to be A. Interest is an operating expense. Interest Payments are also different. WCInv is subtracted from both.
LEAST LIKELY A DIFFERENCE.
interest is most definitely not an operating expense, unless your a financial institution.
If I have learned anything from these questions, it is that if it doesn’t say they aren’t you assume they are.
ok this is just a messed up question
Agreed, I guess it just seems like it has to be A.
why would it be a? both FCFF and FCFE : WCInv needs to be deducted. Operating Expenses : Are also deducted. FCFF -> includes Interest payment addition. SO IT IS NOT DEDUCTED. That is your difference.
The question says least likely. Least likely the difference. Interest payments are definitely a difference. The only one that should be the same or least likely difference is WCInv.
cpk123 Wrote: ------------------------------------------------------- > why would it be a? > > both FCFF and FCFE : WCInv needs to be deducted. > Operating Expenses : Are also deducted. > > FCFF -> includes Interest payment addition. SO IT > IS NOT DEDUCTED. > > That is your difference. least likely a difference. Since WCInv is deducted from both, it is least likely a difference.
Ok thanks guys. The answer is B, but as many have pointed out “LEAST LIKELY” is stated in the question so this question is definitely a dud. Again, answer should be A. Sorry to cause any confusion.