Difference between FCFF and FCFE.

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Accepted Answer

FCFF is the cash flow available to all investors, while FCFE is the cash flow available to equity investors.

FCFF includes debt and equity financing, while FCFE only includes equity financing.
FCFF is used to determine the value of the entire firm, while FCFE is used to determine the value of equity.
FCFF is calculated as EBIT*(1-tax rate) + depreciation - capital expenditures - change in working capital, while FCFE is calculated as FCFF - interest*(1-tax rate) + net borrowing.
Example: If a company has $100 in EBIT, $20 in depreciation, $30 in capital expenditures, $10 in change in working capital, $5 in interest, and $15 in net borrowing, then FCFF = $70 and FCFE = $60 (assuming a 30% tax rate).

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