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I have a confusion in tax computation that we calculate in computation free cash flow to firm or equity
My confusion is should i consider interest cost for tax calculation to use it in FCFF or should i ignore it and calculate tax on profit before interest.
For FCFF you ignore interest and the tax saving on the interest (so yes – calculate tax on the profit before interest).
What should i do in case of FCFE?
(Meaning Should i consider interest for tax computation or should i ignore it???)
With FCFE you take the cash flow after interest and after the tax saving on the interest. i.e. the cash left for shareholders.