Question #79
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 38
Status: Unattempted
Question
The repurchase of 20% of a firm's outstanding common shares will cause free cash flow to the firm (FCFF) to:
Answer Choices:
A. remain the same
B. decrease
C. increase
Explanation
Share repurchases are a use of free cash flows, not a source. FCFF is cash flow that is
available to all capital suppliers. Notice the conspicuous absence of repurchases in the
following: FCFF = CFO + Int (1 – tax rate) – FCInv.