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How would the following items affect FCFF?

The question is:

Assuming a FCFF figure for year 1 is £1m, for the items below calculate how a £200k increase in each item below would impact on FCFF. Assume where relevant a tax rate of 20%.

1. Depreciation (assuming it is tax deductible)
2. Accounts receivables
3. Interest expense

1. +40k
2. -200k
3. no impact

I understand #2 and #3 but i couldn't figure how the logic for #1.

I thought the formula for FCFF is NI + NCC(noncash charges e.g. depreciation) - WCInv + Int * (1-tax) - FCInv

So why was the increase only 40k and not 200k ?

Even if it's 'tax deductible' shouldn't it be +160k?

Best Answer


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