How would the following items affect FCFF?

Isn’t FCFF actual cash flow? So any depreciation adjustments wouldn’t actually directly impact FCFF, but the tax savings it generates (assuming an increase in £200k in depreciation saves you 200*20%=40k) will be added to the FCFF.

In terms of explaining it via the formula, your NCC would increase by £200k, but NI would decrease by £200k as well, plus an increase of 40k in tax benefits. The better formula to use would be:

EBIT * (1-tax) + Depreciation & Amortization – WCInv – FCInv

So adding your 200k increase to depreciation, you get

(EBIT – 200k) * (1 – 20%) + (D&A + 200k) – WCInv – FCInv
= EBIT – 160k + (D&A + 200k) – WCInv – FCInv
= EBIT + D&A – WCInv – FCInv + 40k

What he said.

@mattjuniper no, you’re not picking up an easy badge that way!

Never mind, they’re not taxed. Just added.

We addressed this, but would deferred taxes come into play for FCF formulas in the equity section? (I think not…)

What he said.

Thanks @mattjuniper! 😀

Would preferred dividends be taxed when adding to get FCFF, like interest?

@Zee Ha I wish! Actually I had nothing more to add. @Fabian covered it off beautifully!