Assuming 40% tax, if depreciation increases by $100, then:
FCFF = NI + Depr + Int(1-t) - FCinv -WCinv,
should increase/decrease by how much?
How about FCFE, increase/decrease by how much?
What if If interest expense increases by $100, what’s the impact on FCFF and FCFE?
NI will be lower by 100*(1-0.4)
Dep will be bigger by 100, so FCFF bigger by 40. same with FCFE
if int exp inc by 100, then you NI will be lower by 100*(1-0.4)
FCFF will add 100*(1-0.4) so no change for him
FCFE will be lower by 100*(1-.4) since you don’T add it to FCFE
thanks for the tip waldz. just did it and it was worth it.
FCFF:+40, 0
FCFE:+40, -60