I have a question about calculating FCFF from NI. We add back after-tax interest charge because interest is tax deductible. However, we add back the entire depreciation amount, even though that too is tax-deductible. Why?
You add back depreciation because depreciation is noncash.
By the way, you don’t add back the after-tax interest charge because interest in tax deductable; you add it back because FCFF measures how much cash you have to pay to suppliers of financing, and interest is money that is paid to suppliers of financing. The reason that you add back only the after-tax amount is that it represents your (net) cash flow; if interest were not tax deductable, you would add back the full amount.