How does a lower tax rate generally affect a company's free cash flow in a DCF?

A lower tax rate generally affects a company's free cash flow positively by increasing it. Free cash flow is calculated as the cash a company generates from its operations after capital expenditures, and it can be significantly influenced by the tax rate imposed on the company's earnings. When a company's tax rate decreases, it retains a larger portion of its revenue, leading to higher after-tax earnings.

This increased after-tax income translates directly into higher free cash flow, allowing the company to invest further in its operations, pay down debt, or return capital to shareholders. The relationship between tax rates and free cash flow is important in discounted cash flow (DCF) analysis, as higher free cash flow increases the overall valuation of the company. Therefore, the correct answer reflects the fundamental impact of taxation on a company's financial health and its cash-generating capabilities.