All cases
Estimate cash available to a manufacturer’s shareholders
Bridge FCFF to FCFE · Fictional case
The situation
FCFF is ₹70 crore, interest is ₹12 crore, tax rate is 25%, new borrowing is ₹20 crore and principal repayments are ₹28 crore.
Your task
Bridge operating cash flow available to investors to FCFE.
Reveal step-by-step solution
Set up the problem
After-tax interest is ₹12 × 75% = ₹9 crore. Net borrowing is ₹20 − ₹28 = −₹8 crore.
Work through the numbers
FCFE = ₹70 − ₹9 − ₹8 = ₹53 crore.
Interpret the result
A debt repayment year reduces cash available to equity. Discount FCFE at the cost of equity.
What to remember
Subtract after-tax interest, add net borrowing and match the result to the equity discount rate.