WarrenB1

then how do you explain this?

Q. when company X establishes a dividend and issues additional debt, most likely effect on FCFF be:

A. no change
B. FCFF decrease
C. FCFF increase

correct answer is A according to schweser.

vol 2 exam 2 question #39.

can someone shed some light on this?

19831985

FCFF will increase because the Interest(1-t) will increase

FCFF = NI + NCC + Int(1-t) - FCinv - WCinv



Edited 2 time(s). Last edit at Sunday, May 29, 2011 at 01:20AM by mbolzicco.

comp_sci_kid

yes, if the debt was issued on the first of the year so as to get the benefit from paying/accruing interest all year long.

NI + Int(t-tax)+WCinv+FCinv= FCFF

Those scientists better check their hypotenuses, dude!