Question

1.-How does an increase in depreciation expense affect FCF(free cash flow) when a tax rate is 30%?

Increases FCF

Decreases FCF

No impact on FCF

2.- All else equal, How does a depreciation schedule (eg. a 6-year schedule to a 4-year schedule) affect NPV when a tax rate is 30%?

Increases NPV

Decreases NPV

No impact on NPV

Not enough info.

Answer 1

1.
Increases FCF by Depreciation* tax rate

2.
Increases NPV as more tax shield is realised earlier