Another way of achieving the same objective is to go back to EBIT and apply the applicable taxt rate and remove that amount. Following example will clear this,
Sales 100
COGS 20
EBIT 80
Int. 20
EBT 60
Tax 18 (30%)
NI 42
SO, to find out FCFF, we need to add post tax interst (20*.7) 14 to NI. So, FCFF is 56.
Otherwise, you can apply applicable tax rate to EBIT (80 *.7) = 56, and get the same FCFF. Hope it helps. |