CFA Practice Question

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CFA Practice Question

When forming an estimate for free cash flow to equity (FCFE) using free cash flow to the firm (FCFF) as the starting point, an estimate must first be made for each of the following components except:
A. Interest expense.
B. Net borrowing.
C. Net investment in working capital.
Explanation: FCFE = FCFF - Interest expense (1 - tax rate) + Net borrowing

Working capital is already included in the FCFF figure.

User Contributed Comments 1

User Comment
volkovv FCFE = FCFF - Interest Expense*(1-tax rate) + Net Borrowing
FCFE = CFO - Fixed Capital Investment + Net Borrowing
FCFF = CFO + Interest Expense*(1-tax rate) - Fixed Capital Investment
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