FCFE and FCFF - effects of financial leverage

[ayousaf]

Hi,
Just came across a statement as I was doing CFAI questions:
“Changes in financial leverage (the amount of debt financing in the company’s capital structure) affects FCFE but not FCFF”
How can this be the case if the after-tax interest is a component of FCFF?
From my understanding, as the debt issued by a company grows, the interest cost will rise, increasing the after-tax interest component of FCFF.
Thanks

 

[onlysimon]

from NI you add back Interest(1-tax) to create FCFF. therefore the FCFF is a measure of the unlevered company.

 

[S2000magician]

In FCFF, after-tax interest cancels out: subtracted to arrive at net income, then added back.