Why doesn't depreciation get a tax shield?

CFA Level II
#1

FCFF = NI + NCC + Int( 1-Tax rate )-FCInv-WCInv

Since NCC (D&A) is accounted for in Opex, shouldn’t it be added back post-tax like the interest?

#2

The tax shield from depreciation is already accounted for in NI and we are trying to arrive at unlevered cash flows (no interest).

#3

As you want to calculate the cash flow before financing expenses and taxes are a cash item you do not eliminate/correct them.

Regards, Oscar

#4

Because people don’t actually pay “depreciation expense”.