Interest expenses in FCFF and FCFE models
It is obvious that FCFF considers interest expenses or incomes. If the firm receive interest payments, it would have more cash flow (makes sense).
BUT FCFE does not consider interests. WHY?
FCFE is defined as "cash available to shareholders of a company after all expenses".
From the definition, one should be clear that interests received (paid) is part of cash inflow (outflow).
Confused.
FCFE = Net Income - Net Capital Expenditure - Change in Net Working Capital + New Debt - Debt Repayment FCFE = FCFF - [Int * (1 - t)] +Net borrowing
FCFF = NI + NCC + [Int * (1 - t)] + FCInv - WCInv
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