What is free cash flow? Why is it important for leveraged buyouts?
This is equal to the cash flow from operating activities less the Capital Expenditures (maintains productive capacity) less dividends This balance is available for special financial activities e.g. leveraged buyouts where a firm borrows money to buy its won stock and go private. The free cash flow must be sufficient to pay back the loan of the leveraged buyout. 10) Why is the interest expense said to cost the firm less than the actual expense while dividends cost it 100% of the outlay? Interest is a tax deductable expense. This lowers the taxable income and thus reduces the tax expense. The interest expense is thus offset buy a savings in tax expense at the prevail rate. Dividends on the other hand are paid out of after tax income and are not tax deductible. They have no affect on the amount of tax paid and thus must be paid for 100%.
Related Questions
- What is the correct definition of Free Cash Flow and is it useful to compare a companys performance from one year to the next, on the basis of Free Cash Flow and the way it changes?
- What is free cash flow? Why is it important for leveraged buyouts?
- Why is free cash flow important to leveraged buyouts?
