CFA Practice Question

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CFA Practice Question

Assume a 30% tax rate. If the depreciation amount increases by $100, this period's FCFF will ______.

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).
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