Why don't we consider the interest tax shield when calculating unlevered free cash flow?

I've been confused for a while but basically I'm not understanding why we use EBIT(1-T) which derives to Net Income + Interest (1-T) instead of just Net Income + Interest. Why are we removing the effects of the interest tax shield?

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Sep 18, 2018

Unlevered FCF = cash the business has before paying its financial obligations. Accordingly, EBIT(1-T), also known as Net Operating Profit after Tax (NOPAT), is a measure of profit that excludes the costs and tax benefits of debt financing. For avoidance of doubt: EBIT(1-T) = earnings before interest and taxes (EBIT) adjusted for the impact of taxes = NOPAT.

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Sep 18, 2018
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