FCFF Calculation

Hi All,

I Understand the reason for adding back Interest expense while calculating FCFF but bit confused with tax rate, why are we reducing the interest expense proportionate to tax rate?

Because interest is tax deductible, so the change in cash flow is the interest cost net of taxes.

Thank you!!

You’re welcome.

The same question came up in another thread; I posted a longer explanation there: http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91339055