Differences between FCFF and FCFE following, available, investment, difference

dandman

This Q seems simple but I am not understanding why interest payments is LEAST LIKELY a difference? Maybe it's something with the language they use...



Which of the following is least likely one of the differences between FCFE and FCFF? FCFF includes adjustments to revenue for:

A) interest payments to bondholders.

B) working capital investment.

C) operating expenses.


Your answer: A was correct!

FCFF includes the cash available to all of the firm’s investors, including bondholders. Therefore, interest payments to bondholders are not removed from revenues to derive FCFF. FCFE is FCFF minus interest payments to bondholders plus net borrowings from bondholders.