Hello, I’m having trouble understanding why V = EBIT(1-t)/WACC. Why can we use EBIT or NOPAT as a proxy for cash flow? Why wouldn’t we have to add back depreciation and subtract FCInv and WCInv? Isn’t this tantamount to saying NOPAT = FCFF?
Hi aalp, I believe my simple response to that is depreciation, FC Inv, and WC Inv do not impact cash at all. Depreciation specifically is a non-cash line item. Therefore we won’t include those items when calculating cash flows.
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