- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 22. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO
CFA Practice Question
Assume a 30% tax rate. If the depreciation amount increases by $100, this period's FCFF will ______.
B. increase by $30
C. increase by $70
D. increase by $100
A. not change
B. increase by $30
C. increase by $70
D. increase by $100
Correct Answer: B
Net income will decrease by $70 (30% tax shield), and NCC will increase by $100. As FCFF = NI + NCC + Int (1 - Tax rate) - FCInv - WCInv, the net effect is that FCFF will increase by $30.
User Contributed Comments 1
| User | Comment |
|---|---|
| Paulvw | Alternatively, the only depreciation-affected term in the FCFF calculation from EBITDA is NCC(T). |