i am not quite sure that i follow the logic given for calculation of FCFF . i mean why is it that we do not account for tax savings from interest when we compute FCFF from either EBIT or EBITDA? we do account for the same when we compute FCFF from NI or CFO. we add back depreciation tax shield to EBITDA(1-t) , right? the logic being even though it’s a noncash expense, the firm reduces its tax bill by expensing it. so going by the same logic, shouldn’t we add back interest tax shield to ebit and ebitda even though it’s a financing charge? can anyone clarify please?
EBIT and EBITDA are before Interest is deducted. So you do not have to add it back. NI or CFO have the interest component accounted for inside. So you need to add back the tax savings due to Interest. CP