medium · Investment Banking
How does PIK interest expense affect the calculation of Unlevered Free Cash Flow (UFCF) versus Levered Free Cash Flow (LFCF)?
- LFCF is unaffected by PIK because LFCF only looks at operating cash flows and capital expenditures.
- UFCF increases because the tax shield from the interest expense is included in the calculation of EBIAT.
- UFCF is unaffected because it is calculated before interest; LFCF is higher under PIK than cash interest because there is no cash interest outflow.
- Both UFCF and LFCF decrease because the interest expense reduces the net income used as the starting point.
Sign up free to see the explanation and track your rank →
More Investment Banking practice
- What is the Multiple on Invested Capital (MOIC)?
- What is the control premium?
- Which valuation methodology would likely produce the 'floor' valuation for a mature indust
- Which of the following changes, held in isolation, would most likely achieve this?
- What is the Multiple on Invested Capital (MOIC)?
- If a company has an Unlevered Free Cash Flow (UFCF) of $500 million in Year 5, a WACC of 1
- What is the 3-year Compound Annual Growth Rate (CAGR)?
- If a company's Net Debt is negative, what is the relationship between its Equity Value and