only if you borrow the money!
just solve the FCFE equation for the net borrowing addition - it’s the only thing that is added to FCFF to get FCFE, ie:
Net Borrowing = FCFE - [FCFF - Int(1-tax)]
Agree with FinNinza.
You can also comprehend it as:
Your company generates cash flows from general operations. Your firm has some very interesting new projects and management wants to invest in those projects. If you decide to invest in those projects and investment required is more than cash generated from your internal operations that year, you will have a negative FCFF for that year.
Now, you choose to borrow money to fund the differential. Your FCFE will become positive (as explained in FinNinza’s post above), even though your FCFF is negative.
So, whenever your investment in Fixed Capital increases the amount of cash generated from operations that year, chances are you will see a negative FCFF.
And if that differential is funded by debt, instead of new equity, chances are that FCFE would still be positive.
发表于 2013-4-8 18:15
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