genuinecfa

When you multiply EBIT by (1-T) you are removing all taxes and providing an after tax figure; FCFF is an after tax figure.

If you do the math it works out. Assuming that Dep is the only NCC you have with no Amortization:

Then: EBIT= EBITDA - D

(EBITDA - D)(1-T) + D is the first part of the equation excluding the FC and WC inv.

(EBITDA - D)(1-T) + D = EBITDA - T(EBITDA) - D + DT + D

The D's (depreciation) cancel out and you are left with after tax EBITDA plus after tax depreciation:

EBITDA(1-T) + DT

So IF: EBITDDA(1-T) + DepT = EBIT(1-T) + Dep

Then:

[EBIT x (1-tax rate)] + DEP - FCInv - WCInv holds true



Edited 3 time(s). Last edit at Tuesday, April 19, 2011 at 08:04AM by verse214.