Question 52 CFA mock afternoon session - it tells us growth in 2013 and 2014 but we don’t need compute the 2013 growth? Can anyone explain it besides they are competently trying to trick us?
Yes I think they are, I dont see why you need 2013 growth either.
My question on #52 is why after we value the equity using the FCFE model, do we not back out the debt raised from it at the end? The value comes to 8,793,104 but I thought we should back the debt out after that? Do we not worry about debt when valuing equity using FCFE?
Debt issuance is added to FCFE increasing it now (T0) and then the interest payments from now (T1+TEnd) to maturity reduce FCFE. It is ignored in FCFF
Ok thanks, so since youre already using the FCFE model you do not need to back it out to get to the value of equity.
However, in the FCFF model, you still back out debt to get the value of the equity after doing valuation correct? Even if net borrowing isnt included in the original FCFF number?
So annoying that sometimes you have to, sometimes you dont…its like a damn mounds/almond joy bar. Sometimes you feel like backing out debt, sometimes you dont.