FCFF

Regarding a question in the CFA book regarding the effect of notes payable on FCFF and FCFE.

The answer states that there will be effect on FCFE but not FCFF.

I don’t get this point as sould not N/P be part of CFO, hence it should affect both?

So notes payable is considered a cash from financing. Its equivalent to short term borrowings which makes up the component of net borrowings used in FCFE. So yes, it will impact FCFE and not FCFF.

Thanks! I was confused that it is similar to A/P :smiley:

Studying is insane :smiley: