brainsX

Nice post nomad_SA

Keep in mind that FCFE is the cash "avalable" to be distributed to the equity holders. How it is actually used is the management's discretion.

your statement below is not true. Debt, in the form of borrowings, becomes a part of FCFE, ie, cash available to equity. So, debt is part of the forecast associated with cash flow to equity. If the firm borrows money (debt), the cash inflow could be used to pay dividends to equity investors, hence becoming cash available to equity. Similarly, operating investments (FCInv, WCInv) are estimated based on the target debt structure of the firm to calculate how much of those investments will be financed by debt, which again, becomes cash available to equity.

CFAI text does a great job in deriving the 2nd equation, similar to what nomad_SA has done above.

Trekker Wrote:
> c) In formula #2, 'net borrowing' is not taken
> into account since debt is not part of the equity
> forecast