- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 24. Free Cash Flow Valuation
- Subject 2. Computing FCFF and FCFE from net income, EBIT, EBITDA, or CFO

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**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.

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**User Contributed Comments**
1

User |
Comment |
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Paulvw |
Alternatively, the only depreciation-affected term in the FCFF calculation from EBITDA is NCC(T). |