FCFF and FCFE: change in dividends and additional debt issue

FCFF = NI + NCC + Int(1-t) - NWInv - FCInv
FCFE = FCFF - Int(1-t) + Net Borrowing

NI = (EBIT - Int)(1 - t)

FCFF = (EBIT - Int)(1 - t) + NCC + Int(1-t) - NWInv - FCInv = EBIT(1 - t) + NCC - NWInv - FCInv
FCFE = EBIT(1 - t) + NCC - NWInv - FCInv - Int(1-t) + Net Borrowing

FCFF and FCFE: change in dividends and additional debt issue

	Dividend establishment	Additional debt issue
FCFF	No effect	No effect (*)
FCFE	No effect	(1) By issuing debt issue: FCFE↑ = FCFF→ - Int(1-t) + Net Borrowing↑ (2) By coupon payments thereafter: FCFE↓ = FCFF→ - Int↑(1-t) + Net Borrowing (**)

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[Explanation 1]

(*)
FCFF = EBIT(1 - t) + NCC - NWInv - FCInv
There is no impact from the additional debt issue. (e.g. Int, Net Borrowing)

(**)
By issuing debt issue:
FCFE↑ = FCFF→ - Int(1-t) + Net Borrowing↑

By coupon payments thereafter:
FCFE↓ = FCFF→ - Int↑(1-t) + Net Borrowing

It will initially increase FCFE by the amount of debt issued
and then reduce FCFE thereafter by the after-tax interest expense.

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[Explanation 2]

(*)
Before the debt issue:
FCFF = NI + Int(1-t) + NCC - NWInv - FCInv

After the debt issue:
FCFF'
= (NI-ΔInt*(1-t)) + (Int+ΔInt)(1-t) + NCC - NWInv - FCInv
= NI + Int(1-t) + NCC - NWInv - FCInv = FCFF


(**)
Before the debt issue:
FCFE = FCFF - Int(1-t) + Net Borrowing

After the debt issue:
FCFE'
= FCFF' - (Int+ΔInt)(1-t) + (Net Borrowing+ΔNet Borrowing)
= FCFF - Int(1-t) + Net Borrowing+(ΔNet Borrowing- ΔInt(1-t))
= FCFE + (ΔNet Borrowing- ΔInt(1-t))

FCFE' > FCFE
∵usually ΔInt(1-t) < ΔNet borrowing
(ΔNet Borrowing- ΔInt(1-t)) > 0