All,
On Schweser Book 3 P.143 they comment on how to adjust the FCFF/FCFE for preferred stock.
I agree with adding back dividends from preferred stock back to FCFF and adjusting WAAC.
But then, they say that the only adjustment to FCFE is on net borrowings to reflect changes in the preferred stock balance. Shouldn’t we be subtracting the dividends from preferred stock here as well to reach FCFE (similarly to what we do to after-tax interest expense to reach FCFE)?
On Schweser Book 3 P.143 they comment on how to adjust the FCFF/FCFE for preferred stock.
I agree with adding back dividends from preferred stock back to FCFF and adjusting WAAC.
But then, they say that the only adjustment to FCFE is on net borrowings to reflect changes in the preferred stock balance. Shouldn’t we be subtracting the dividends from preferred stock here as well to reach FCFE (similarly to what we do to after-tax interest expense to reach FCFE)?