easy · Investment Banking
When calculating Unlevered Free Cash Flow (UFCF), why is Depreciation and Amortization (D&A) added back to tax-effected EBIT?
- Because D&A is inherently a levered accounting metric that must be stripped entirely from EBIT to reach unlevered cash flow.
- To account for the actual cash spent purchasing new equipment and fixed assets during the current year.
- Because D&A is a non-cash expense that was subtracted to calculate EBIT but did not involve an actual cash outflow.
- Because D&A generates a tax shield that increases the company's mandatory cash interest payments to lenders.
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