In the Levered Discounted Cash Flow (LDCF) analysis, what is the nature of cash flows projected?

In Levered Discounted Cash Flow (LDCF) analysis, the cash flows projected are specifically the free cash flows after interest expenses. This means that the analysis considers the cash flow available to equity holders after accounting for all financing costs, including interest payments on debt.

When conducting LDCF, analysts focus on the cash flows that remain for equity investors after the company has met its debt obligations. This approach is crucial because it reflects the actual cash flows that equity investors can expect to receive, providing a more accurate assessment of the value of equity in a levered firm. By using cash flows after interest expenses, LDCF incorporates the effects of capital structure on the value of the firm and ensures that the analysis aligns with how equity investors look at their returns.

Other options, such as projecting free cash flow before interest expenses or focusing solely on specific types of cash flows, do not account for the impact of leverage on the firm's cash flows and hence do not reflect the true economic reality of equity investors in a levered capital structure.