- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 28. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO
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 or FCFE = CFO - Fixed Capital Investment + Net Borrowing FCFF = CFO + Interest Expense*(1-tax rate) - Fixed Capital Investment |