Question on a mock asked what the effect of an increase in debt on FCFF would be. Correct answer was no effect. Wouldnt the increase in Interest expense increase FCFF on an after-tax basis?
FCFF = NI + NCC + Int(1-t) - FCInv -WCInv?
Nevermind, saw S2000 magicians explanation on an older post
Cool!
I was about to answer your question. I just saved myself some time.
You have to think of it from the perspective of what FCFF actually is. it represents amounnt of cash avaliable to both debt and equity holder. Thus, if you are changing the mixup between debt and equity, you are basically holding FCFF the same.
In your equation, the lower net income is going to offset the higher added back interest expense.