Equity Valuation using FCFF

[vignesh.sabhahit]

Why is that while calculating FCFF using EBITDA and EBIT interest tax shield gained isn’t added back?
If it has to do with the beginning point of calculation, why is it that while calculating FCFF using EBITDA tax shield gained by depreciation is added back?

 

[cdealbuquerque]

FCFF = NI(1-t) + Int(1-t) + NCC - FCInv - WCINv
Where NI = Net Income
t = Tax rate
Int = Interest
NCC = Non cash charges
FCInv = Fixed capital investment
WCInv = Working capital investment
If we assume that NCC = Depreciation
FCFF = NI(1-t) + Int(1-t) + DEP - FCInv - WCINv
NI = (EBITDA -DEP-INT)(1-t)
FCFF = (EBITDA - DEP-INT)(1-t) + Int(1-t) + DEP - FCInv - WCINv
=EBITDA(1-t) - DEP(1-t) - INT(1-t) + Int(1-t) + DEP - FCInv - WCINv
FCFF = EBITDA(1-t) - DEP(t) - FCInv - WCINv

 

[vignesh.sabhahit]

Oh god, thank you! After spending countless hours pondering over the subject I feel stupid in realizing that simple math was the answer behind it.
Thanks again!

 

[cdealbuquerque]

My pleasure and good luck.
P.S. I felt the same before trying the algebra, so, we’re in the same boat.