Mock exam morning session question solution, income, question, morning

stockjaguar

Q58 solution:

FCFE = Net income - (1-DR)(FCInv - Dep) - (1-DR)(WCInv)
= 1.8 - (1-40%)(0.3*1.8) - (1-40%)(0.1*1.8)

What is DR (40% in this case)?

chandsingh

I don't know the question but according to the formula you put it is the target debt ratio. So, you finance 40% of capex and working capital with debt, hence, only 60% of them matter for the calculation of FCFE.

Kapie

TheLegend Wrote:
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> Debt ratio?


Yes, the one in the capital structure concept.

yodacaia

Debt ratio?

jacksparrow

Target debt ratio = Debt/Assets

They make that confusing. It's not your debt/equity ratio. It's debt/(Debt + Equity)