Current Portion Of Long-Term Debt in FCFF and FCFE

CFA Level II Equities
#1

Hello all

i am wondering what would be the impact of

Current Portion Of Long-Term Debt on FCFF and FCFE?

I believe it should be ignored because it is just an allocation, not an actual outflow. Please advise.

#2

You are correct.

The term classification( ST vs LT) is just accounting category in BS. Since FCFE is based on cash inflow/outflow, this classification hasn’t effect. The debt service cash inflows/outflows in a form of new debt emission or current debt repayment affect FCFE.

Debt emissions does not affect FCFF at all because is cash transfer from debt holders to equity holders (and vice versa in a case of debt repayment) thus overall cash to firm remains 0.00.