Question on debt payoff in DCF
So the original interview question is: A company has a high debt load and is paying off a significant portion of its principal each year. How do you account for this in a DCF?
The answer given is: If you were looking at Levered Free Cash Flow, then our interest expense would decline in future years due to the principal being paid off - but we still wouldn't count the principal repayments themselves anywhere.
My thought: I checked the formula of Levered Free Cash Flow and realized it takes into consideration of the principal paid off: Levered Free Cash Flow= Net Income + D&A - Change in NWC - Capex + Net Borrowing. Here in Net Borrowing we can factor in the principal repayments. Why does the official answer say "we still wouldn't count the principal repayments themselves anywhere"?
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