mengxu

mysterious I think I might have figured out the logic in my head for the interest tax shield. Since the ultimate goal in calculating FCFF is to come up with a current valuation of the firm (including projecting FCFF and discounting that back) the tax shield is effectively taken care of in WACC.

Remember: WACC=Rd(1-t)Wd +ReWe

So by increasing the amount of debt "FCFF" won't change, but the value of the firm will increase b/c of the higher weight to the lower cost of financing thus decreasing WACC and increasing V@t=0.