The repurchase of 20% of a firm’s outstanding common shares will cause free cash flow to the firm (FCFF) to: A. increase. B. remain the same. C. decrease.
Share repurchases are a use of free cash flows, not a source. FCFF is cash flow that is available to all capital suppliers. Notice the conspicuous absence of repurchases in the following: FCFF = CFO + Int (1 – tax rate) – FCInv.
