One can never get enough FCFF/FCFE practice...

Which of the following items is NOT subtracted from the net income to calculate free cash flow to equity (FCFE)? A) Interest payments to bondholders. B) Capital spending. C) Additions to cash. D) Subtractions to notes payable. Which one of the following is least likely to be added to free cash flow to equity (FCFE) to calculate the free cash flow to the firm (FCFF)? A) After-tax interest expense. B) Common dividends. C) Principal repayments. D) Preferred dividends.

C & not sure on the second, maybe b b/c FCFE doesn’t include divs, ? Keeping in mind I can’t stand this subject.

Damn. 1st One - I have no idea. 2nd One - Common Dividends.

I have no idea … but feel it’s C and D somehow?

Well if its the choice b/t common and preferred dividends it has to be common Dinesh. Preferred could be considered debt. I know dividends are not supposed to have any influence on FCF.

A & B

C & C ?

regarding #1 - haven’t we already accounted for interest expense when calculating Net Income? Why would we have to subtract it out again?

c b

Interest payments to bondholders are not subtracted from NI because the payment of interest is already included in the calc of NI. so A for q 1. **Edit ilvino beat me to it. and common dividends are not added to FCFE to calc FCFF, Int is, principal payments are, and pfd div may be as they are treated like Int if they are paid. so B for q 2.

yeah, i had been doing pretty well on FCFF/FCFE stuff and then screwed these 2 up. If someone can elaborate on the 1st one, i’m a bit fuzzy. 2nd one makes sense, pinkman is all over that one. the man from naples apparently is on his A game after a few glasses of vino tonight! Your answer: C was incorrect. The correct answer was A) Interest payments to bondholders. Interest payments to bondholders are included in the income statement and are already subtracted to calculate net income. Your answer: C was incorrect. The correct answer was B) Common dividends. FCFF can be calculated by adding cash flows to all claim holders (investors). FCFF = FCFE + [Interest Expense × (1 − tax rate)] + Principal Repayments − New Debt Issues + Preferred Dividends.

C and C

arghh!!!

Additions to cash. Okay this sounds simple but what the heck is that and why is it subtracted? And for that matter what is subtractions to notes payables. I’m guessing repayment of debt.

Thanks for the Naples Flo’ Rida shout out, Banny.

subtraction to notes payable i threw in there in my mind as debt repayment. i didn’t know where to put “additions to cash”… that’s why i bit on it. what is that part of? interest payments make sense for the right answer as stated above by folks

Yeah, it seems one can never get enough FCFF/FCFE practice. Here’s my shot. 1. A FCFE=NI+NCC-FCInv-WCInv+NB A) Interest payments to bondholders. >> It’s NOT subtracted. B) Capital spending. >> That’s FCInv. It IS subtracted. C) Additions to cash. >> Dunno. D) Subtractions to notes payable. >> Dunno. 2. B FCFF=FCFE+Int(1-t)-NB A) After-tax interest expense. >> Added. B) Common dividends. >> It’s not in FCFF nor in FCFE. NOT added. C) Principal repayments. >> It’s negative NB. Added. D) Preferred dividends. >> It’s like Int. Added.

Which of the following items is NOT subtracted from the net income to calculate free cash flow to equity (FCFE)? A) Interest payments to bondholders. B) Capital spending. C) Additions to cash. D) Subtractions to notes payable. C is ruled out coz change in WCInv does not consider change in cash. So it will not part of the equation at all in the first place to be subtracted out. and D - ruled out coz change in WCInv does not consider notes payable. So it will not part of the equation at all in the first place to be subtracted out. any thoughts??

Which of the following items is NOT subtracted from the net income to calculate free cash flow to equity (FCFE)? A) Interest payments to bondholders. B) Capital spending. C) Additions to cash. D) Subtractions to notes payable. C is ruled out coz change in WCInv does not consider change in cash. So it will not part of the equation at all in the first place to be subtracted out. and D - ruled out coz change in WCInv does not consider notes payable. So it will not part of the equation at all in the first place to be subtracted out. B is definitely ruled out so A is the answer. any thoughts?

your right!