giants2010

jgrandits Wrote:
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> But due to the tax shield wouldn't some of the
> additional interest exp flow back to the firm?


NI = (Sales - COGS - int) (1-t)
NI = (Sales - COGS) (1-t) - int * (1-t)

Then FCFF = NI + int(1-t) + ...
FCFF = (Sales - COGS) (1-t) - int * (1-t) + int(1-t)

so you see you are subtracting after-tax interest then adding it back, so if you increase int exp or not, it doesn't matter.