Question #111 - Reading 21 Free Cash Flow Valuation

Reading: Reading 21 Free Cash Flow Valuation

PDF File: Reading 21 Free Cash Flow Valuation.pdf

Page: 57

Status: Unattempted

Shared Context

- Calculate the forecasted free cash flow to equity (FCFE) for 2x12. A) 10.5. B) –9.5. C) –49.5.

Question

Regarding the handbook's statements on free cash flow techniques: Statement 1 Statement 2

Answer Choices:

A. Correct Correct

B. Incorrect Correct

C. Correct Incorrect

Explanation

Dividends, share repurchases, and share issues have no effect on either FCFF or FCFE. FCFF and FCFE represent the total cash flow available before financing decisions. Share repurchases represent uses of those cash flows. If debt is repaid FCFE, will decrease in the current year because of reduced (negative) net borrowings and will increase in future years as interest expense is reduced.

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