When adding "net borrowings" to arrive at FCFE, this is simply the change in debt correct (i.e. additional ST debt + additional LT debt)? Just wanted to be sure.
I think it's another mistake cause net borrowings = (Change LT debt + Change N/P) not (Change LT Debt - Change N/P) but the plan im going to follow is if it was asked in the exam, ill try both ways and see what fits best cause seems to me every time it is solved in a different way..
FCFE is cash available to equity holders and issuance of equity, share repurchase and payment of didvidend has no impact on it
issuance of common stock is ignored from FCFE , however issuance of preferred stock is included (preferred div treated just like debt without tax shield)
psriniva Wrote:
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> All right. after going through all the responses
> above, I am totally confused about how to treat
> the Notes Payable. Some of the responses are
> conflicting with others in this thread.
> Would some one please tell us all how to treat
> Notes payable while calculating Net Borrowing.
I got it.
Anyone get the schweser videos? They have two slides specifically treating Net Borrowing.
Net Borrowing Adjustments
1) Long Term Debt:
- ADD debt issuances to net income to arrive at FCFE
- SUBTRACT debt repurchases from net income to arrive at FCFE
- Net Borrowings = new debt - debt repurchases
2) Notes Payables:
- Increase in notes payables, ADD to FCFE
- Decrease in notes payables, SUBTRACT from FCFE
3) Current Portion of Long Term Debt
- Increase in short term debt, ADD to FCFE
- Decrease in short term debt, Subtract from FCFE