When doing a DCF, should you be using the company's book depreciation, or tax depreciation? I assume tax, but wanted to check.
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DCF is concerned with free-cash- flow, so yes tax depreciation should be used to get to cash taxes.
I dont think this is correct...FCF=EBIT*(1-t)+D&A-ChangeNWC-CapEx
>>>Use the depreciation given on the Cash Flow statement.
Also not sure why you would use book (do u mean accumulated?) depreciation as that is a stock not a flow variable
The depreciation on the CF statement should match that on the income statement. The difference between book depreciation and tax depreciation will show up in the CF as non-cash items (or DTA or DTL, usually a DTL because the tax depreciation is usually more favorable) in the operating cash flows section. When you calculate the FCF, you are implicitly using the tax depreciation because these other items incorporate that difference, even though what you see is the "book" depreciation.
To expand on it, if there were some one-off items that were making the numbers weird and you wanted to exclude them (i.e. the other stuff in NWC like the tax-related line itmes), then you might want to use the tax depreciation, so as to properly capture cash flows but not include tax-related one-time stuff.
Still, I would argue if that such minutia is actually making a difference decision-wise, that it's not a worthwhile investment. (Most of this modeling stuff is overkill. My view is always: "keep it simple, stupid").
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