I’m going back to Chapter 11 to get a better handle on Reading #43. For whatever reason the entire process isn’t sticking and am coming up with different numbers than they are in the text. Any rec’s on how someone struggled at first and then tried a different approach and it clicked. Is it best to get through all of Chapter 12 and then come back? I just barely started SS 12. In Schweser book#4. Page 110. In figure 2 they are saying real depreciation is 75 in year 0. How is that the case if there was 0 PPE at the beginning of the year. With 75 depreciation that would put beginning PPE at 225. Just don’t understand. Can anyone out there help clarify?
If we are going to have an emerging-market-valuation vignette this June, I am sure to guess-mark those 6 questions and move on the next vignette. The whole idea of nominal and real CF’s doesn’t seem to stick.
I hear ya dinesh. I went through the Schweser videos on that example and they made it much more simple. They took out the NWC portion of it and it somewhat made sense but when I go to the example in the text, not a chance at this stage. Going to try again today and see if it comes to me.
GMofDen - maybe you could share the gist of what was being talked-off in the videos (I don’t have them) and heal some of my blisters too.
Hey Dinesh, what is your email address? Probably too lengthy for this posting but I can show you.
I sent it over. Hopefully it helps. If you ever figure out how they got $75 for depreciation on page 110 let me know. Still haven’t figured that one out.
Thank you so much, GMofDen! appreciate your help. Will have a look at the process once I reach home and let you know my thoughts on it probably late in the nite today. EDIT: no gmail access in office 
Hey no problem at all. Glad to try and help out. Give me a shout back out later and let me know if it helps or if there is an area I can help try and explain.
Hi, The assumptions on page 109 should answer your question. One of the asumptions is “Ratio of real net property, plant, and equipment (PPE) to revenues is 30%”. So I suppose Depreciation is 30% of 1000.
It doesn’t seem like that example is consistent. So in Figure 6 why is there not nominal depreciation in Year 0, $0.
Net PPE (not dep.) is 30% of 1000 = $300 Lifetime of net ppe is 4 years … therefore 300/4 = $75 dep for year 1 If you look at figure 2, real dep. (today @ $75) is irrevelant as you can see it is not taken into the calculation. What matters is dep. for years 1 - 4 which can be calculated by taking beginning net ppe and dividing by 4. Hope that helps a little
our prof in class said that if you don’t want to learn the CF side, at least learn the adjust WACC for emerging markets. Its a fairly simple concept (on the debt side use the local RFR plus a US credit spread on comprable corp. debt and use the industry Beta on the equity side). He said if we do catch a vignette on this that it would be a strong bet that their would be a WACC component and we could pick up some points instead of having to guess away. that’s what I plan to do for the time being and my circle back to this LOS if I have some time in the review process (not bloody likely).
Hey GMofDen, sent you an email. Thanks for all your help buddy!!