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NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles

In the FCFE valuation approach, the cash flow discounted is the cash flow available to:

FCFE is the cash flow available to equity shareholders after paying debt obligations and funding reinvestment. It is discounted at the cost of equity, whereas cash flow to all capital providers is FCFF discounted at WACC.

  1. AEquity shareholders after meeting debt obligations and reinvestment needsCorrect
  2. BAll capital providers before debt servicing
  3. CLenders only after interest payments
  4. DPreference shareholders only

Explanation

FCFE is the cash left for equity holders after operating needs, reinvestment and net debt servicing, and is discounted at the cost of equity. Cash flow to all capital providers is FCFF, discounted at WACC.

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