medium · Principles of Finance cost-of-capital-structure
Which of the following describes the key difference between Free Cash Flow to the Firm (FCFF) and Free Cash Flow to Equity (FCFE)?
- FCFF is discounted at the cost of equity, while FCFE is instead discounted using the firm WACC.
- FCFF is independent of capital structure, while FCFE includes debt service and net borrowing.
- There would be no difference between the two if the firm operated with zero taxes.
- FCFF includes dividends paid to shareholders, while FCFE excludes them from its total.
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