Question
What is the formula for FCFE starting from FCFF?
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Answer
FCFE=FCFF−Interest(1−t)+Net borrowing
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Question
Why must FCFF from CFO under US GAAP include an added-back Interest×(1−t)?
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Answer
US GAAP puts interest paid in CFO, but FCFF is pre-interest.
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Question
What does FCFF represent economically in valuation?
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Answer
Cash available to all capital providers after operations and required investment.
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Question
Why is interest added back as Interest×(1−t) when deriving FCFF from net income?
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Answer
Net income is after interest; FCFF must be pre-debt financing, after tax.
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