- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 22. Free Cash Flow Valuation
- Subject 3. Forecasting FCFF and FCFE
CFA Practice Question
The tax rate is 40%. Assume a $100 increase in cash dividend paid, a $50 decrease in proceeds from issuing new common shares, and a $80 increase in common stock share repurchases, this period's FCFF will ______ and FCFE will ______.
B. not change; increase by $130
C. increase by $130; not change
A. not change; not change
B. not change; increase by $130
C. increase by $130; not change
Correct Answer: A
Changes in these items don't affect free cash flows.
User Contributed Comments 3
| User | Comment |
|---|---|
| thekid | If $100 increase in dividends paid, wouldn't that lower the NI? And as a result lower your FCFF? Also, wouldn't the FCFE change b/c of the change in Debt? Please help me understand? |
| hatalim888 | dividends paid is not the component in income statement to derive NI, so NI won't be affected. |
| davidt876 | the point of the net income figure is to (attempt to) measure the 'earnings' available to equity holders. whether those earnings are paid out or reinvested is another matter. net income is then transferred to the statement of equity - and its in that financial statement that any declared dividends are deducted |