Q58 solution: FCFE = Net income - (1-DR)(FCInv - Dep) - (1-DR)(WCInv) = 1.8 - (1-40%)(0.3*1.8) - (1-40%)(0.1*1.8) What is DR (40% in this case)?
I don’t know the question but according to the formula you put it is the target debt ratio. So, you finance 40% of capex and working capital with debt, hence, only 60% of them matter for the calculation of FCFE.
Debt ratio?
TheLegend Wrote: ------------------------------------------------------- > Debt ratio? Yes, the one in the capital structure concept.
Target debt ratio = Debt/Assets They make that confusing. It’s not your debt/equity ratio. It’s debt/(Debt + Equity)