Corporate finance - Cash flow

There is a formula in Schweser Notes

Session 8 > Reading 25 - Corporate finance

  • CF = (S − C − D)(1 − T) + D

Would like to doulbe check if (S - C - D) is the same as EBIT using in equity? Thanks.


What if the project need to pay interest? CF = (S − C − I − D)(1 − T) + D ?

Dont confuse yourself. It’s the CF that we care about and WACC already reflects the tax shield.

Focus on what we’re after here. This is a capital budgeting issue where we’re analyzing the incremental cash flow from and asset we’re debating to invest into or not invest into!

Do not use EBIT, use the sales - cogs - depreciation from the specific asset in question. Interest is irrelevant since you’re stuck with a fixed amount of capital and this “rate/cost” is included in the NVP equation.