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Dear Tutor,
when calculate cash flow to firm, is profit before depreciation ,interest and tax = EBITA, which is =earning + interest + tax + Depreciation? so need to minus depreciation and tax to obtain only earning + interest?is PBIT=EBIT (= earning+interest+tax)? why when use PBIT to calculate FCFF, it needs to ADD depreciation back?
thanks.
The question says that ‘the annual investment needed to keep operations at their current levels is equivalent to the tax allowable depreciation’. Therefore although the depreciation itself us nt a cash flow, there is a cash flow equal to the depreciation.
This is very common from the current examiners which is why I do mention it in my free lectures.
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