medium · Investment Banking
An analyst is comparing two companies. Company A has high CapEx and low D&A. Company B has low CapEx and high D&A.
If both have identical EBITDA, which is likely more 'valuable' in a DCF analysis, assuming all else is equal?
- Company B, because high D&A provides a much larger tax shield.
- Company A, because its assets are newer, higher-quality, and will last much longer.
- Both are identical in overall value since reported EBITDA is exactly the same.
- Company B, because its free cash flow will be higher due to lower CapEx.
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