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.