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FCF and FCFE, my contribution to the confusing question
Hi,
We all agree with this formula : FCFE = FCFF – (1-T) Interest Expense + Net borrowing.
Net borrowing = Increase in LT Borrowings - Debt repayment.
In the balance sheet, the increase in note payable from one year to another (except if more information are given) correspond to the current portion of LT debt which is a debt repayment.
So, back to our problem
1) LT debt increased from 150 to 157.5 = +7.5
2) Notes Payables increased from 15 to 20 = +5 (which is a repayment).
Because the company borrows more in the year than it repays it will have additional funds - net borrowing - that is added to FCFF in order to determine FCFE.
Then the net borrowing is 7.5 - 5 = 2.5 ! CQFD
In conclusion, I think, it’s not an error. Your contribution would be appreciate if you don’t agree with this.
BK |
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发表于 2013-4-5 22:52
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