FCFE - Net Borrowing - Preferred Stock

CFA Level II Equities
#1

Hi guys,

When calculating Net Borrowing for FCFE, do you add/subtract, increases/decreases in Preferred Stock? Or is this not really considered to be borrowing??

Thanks

#2

Preferred stock is treated like borrowing. You add the increase and subtract the decrease in preferred stock to calculate FCFE.

Similar thing in FCFF, you add back the dividends without adjusting them for tax.

#3

Cheers Gigaloo, good luck with your studies…

#4

You are saying pref dividends are like non cash charges or interest exp?

#5

Preferred dividends are like interest expense but they donot get the same tax benefit as interest expense.

FCFF = NI + NCC + Interest (1-T) + Preferred dividends - WCI - FCI

@forumusernew good luck to you too

#6

I did not know that, thanks. Just preferred right, not common?

#7

Yes preferred only, not common. You don’t need to add back common dividend because it hasn’t been subtracted in the first place.