Why FCFF = unlevered free cash flow?

levered beta contains the risk related to equity holder and debt holder
Similarly, FCFF is the one considering both equity and debt.
But why:
FCFE = levered free cash flow.
FCFF = unlevered free cash flow.
Seems contradictory.

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (3)

Jan 8, 2019 - 8:33am

Simple answer: Beta is only used in CAPM --> cost of equity, not in cost of debt. Its the regression of the equity value of a company and the total equity market. The debt factor is just to incorporate the gearing --> higher gearing = riskier because higher chance of default with possible 0 return for equity holder.

Start Discussion

Total Avg Compensation

May 2021 Investment Banking

  • Director/MD (9) $911
  • Vice President (35) $364
  • Associates (195) $233
  • 2nd Year Analyst (110) $151
  • Intern/Summer Associate (96) $145
  • 3rd+ Year Analyst (26) $145
  • 1st Year Analyst (404) $131
  • Intern/Summer Analyst (330) $82