Answer: Equal to free cash flow to the firm (FCFF).

Under U.S. GAAP, free cash flow to the firm (FCFF) is calculated as CFO plus after-tax interest (i.e., $30,000 * (1 - 0.40) = $18,000) minus capital expenditures ($82,000). This results in a net decrease to CFO of $64,000 ($18,000 - $82,000). Free cash flow to equity (FCFE) is calculated as CFO minus capital expenditures plus net borrowing ($18,000), also resulting in a net decrease to CFO of $64,000 ($82,000 - $18,000). Since the after-tax interest add-back in FCFF equals the net borrowing add-back in FCFE, and both calculations involve the same CFO and capital expenditures, FCFE will be equal to FCFF.

Author: LeetQuiz Editorial Team