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.

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

A CFA Level 2 Discussion About Question Of The Week: Level 2

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This topic has 1 reply, 1 voice, and was last updated May-2010:08 am by MarkMeldrum.

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- MarkMeldrum
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  27 Apr 2020 at 6:41 pm
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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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  01 May 2020 at 10:08 am
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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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