CPATrader

bp, pls note the reduction in NI due to annual coupon expense is also 50*(1-tax rate)

you may refer to the I/S construction of NI. when you calc tax already deduct 50 expense so finally the inpact to NI is only 50*(1-tax), which is added back in Int(1-t), so FCFF remains no change.


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bpdulog Wrote:
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> Theoretically there would be no impact, which is
> why the curriculum suggests using the FCFF method
> when the capital structure is unstable.
>
> But, if I were to issue $1000 of debt @ 5%, I
> would have a $50 annual coupon expense which
> reduces my NI by $50. But we reclaim the tax
> benefit of this, which comes out to $25 assuming a
> 50% tax rate.