Answer: equal to its FCFF.

## Explanation **FCFF Formula:** FCFF = Net Income + Depreciation + Int(1 - Tax Rate) - FCInv - WCInv **Given Conditions:** - FCInv (Fixed Capital Investment) = Depreciation - WCInv (Working Capital Investment) = 0 - No net borrowing mentioned (irrelevant for FCFF) **Substituting into FCFF formula:** FCFF = Net Income + Depreciation + Int(1 - Tax Rate) - Depreciation - 0 FCFF = Net Income + Int(1 - Tax Rate) **However, there's a key insight:** When FCInv = Depreciation, this means the company is only replacing existing assets (maintenance capital expenditure), not growing. In this scenario: FCFF = Net Income + Int(1 - Tax Rate) Since Int(1 - Tax Rate) is a positive number (after-tax interest expense), FCFF will be **greater than** Net Income. **Wait - let me reconsider the options:** Actually, looking at the options: - A: less than FCFF - B: equal to FCFF - C: greater than FCFF From FCFF = Net Income + Int(1 - Tax Rate), since Int(1 - Tax Rate) > 0, FCFF > Net Income, so Net Income is **less than** FCFF. **Therefore, the correct answer is A: Net Income is less than FCFF.**

Author: LeetQuiz Editorial Team