CFA CFA Level 2 Question of the Week: Level 2 – Equity Valuation

Question of the Week: Level 2 – Equity Valuation

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    • MarkMeldrum
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      An analyst trying to determine FCFF from FCFE is most likely to make the following adjustments:

      • A. Add after-tax interest expense and net borrowing.
      • B. Add after-tax interest expense and subtract net borrowing.
      • C. Subtract after-tax interest expense and add net borrowing.
    • MarkMeldrum
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      The correct answer is Option B.

      The analyst can find FCFF from FCFE by adding after-tax interest expense and subtracting net borrowing.

      FCFF = FCFE + Int(1 – Tax rate) – Net borrowing

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