CFA Practice Question

There are 201 practice questions for this study session.

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 ______.

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
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