CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

Free cash flow to equity is most accurately described as operating free cash flow adjusted for ______
A. only interest payments to debt holders.
B. payments to both debt holders (interest and principal) and preferred stockholders.
C. both interest and principal payments to debt holders, but not payments to preferred stockholders.
Explanation: Free cash flow to equity is derived after adjusting the operating free cash flow for payments to debt holders (interest and principal) as well as preferred stockholders.

User Contributed Comments 5

User Comment
lvjunzhang could someone confirm that we have to deduct preferred dividends?
jorellana9 confirmed. the FCFE only accounts for cash flow available to common stockholders
janis36 Preferred dividends does not appear on the FCFE formula. I'm confused.
ascruggs92 ^understand the concept. Bond holders and preferred shareholders have a claim on earning before common equity shareholders. Thus, dividend payments to preferred shareholders are not included because common shareholders never have and never will have a claim on those earnings.
cminor Always treat preferred dividends as if they are debt for the calc
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