FCFF from EBITDA

CFAI says to start with EBITDA(1-T) but i am confused on how to deal with Dep. Do you add Dep(T) back because Dep is already in EBITDA but you need to add back the taxes that you don’t have to pay? If that is the case then why don’t you add back Int (T)

yes that would be the Dep tax shield.

Why don’t you try expanding from basics? ( I am ignoring the A (Amortization) below).

EBIT(1-T) = NI

FCFF = NI + Dep + Int(1-T) + …

EBITDA (1-T) = EBIT(1-T) + Dep(1-T) + Int(1-T)

FCFF - EBITDA(1-T) = Dep - Dep(1-T)

Dep(T)

So FCFF = EBITDA(1-T) + Dep(T)

all other factors remain the same…

Except that EBIT(1-T) does not equal NI. You still have to adjust for Interest and the Interest tax shield. Or have I missed something?

I messed up

(EBIT-Int)*(1-T) = NI

NI + Int(1-T) = EBIT * (1-T)

EBITDA = EBIT + Dep

EBITDA ( 1-T) = EBIT * (1-T) + Dept(1-T)

FCFF = NI + Int(1-T) + Dep

= EBITDA (1-T) - Dep(1-T) + Dep

= EBITDA*(1-T) + Dep * T

I think we don’t add Int(T) because we are calculating the free cash flow available for both the debt investors and the equity investors. Assuming they both are one unit therefore adjusting the amount for tax as it won’t be for the capital providers.