When solving for FCInv can you just take the change in PP&E? In Schweser’s answers to questions, they take the PP&E-accumulated depreciation, then subtract the previous years (PP&E-depreciation), then they just add back the difference. For example, 2005 2006 PP&E 400 480 Accumulated Depreciation -160 -240 This is how schweser says to calculate FCInv…(480-240)-(400-160)+80. Can’t you just take 480-400? I mean where is the 80 that they are adding back coming from? Thanks.
The 80 that Schweser is adding back is the depreciation expense from the current period. So if your PPE increased by 80 and your depreciation expense is also 80, then you really invested 160 into FC. I think that’s where it comes from. Depr Expense is the new accumulated Depr less the old accumulated depr
this brings up a valid point. looking at the CFA material (volume 4, page 367) they show FCFF = NI +NCC + Int (1-T) - FCINV - WCInv In the table 7, gross fixed assets change (+400) and accumulated depreciation change (+300) YoY. However, they only deduct the 400 from the FCFF equation, and do not include acc dep. so. i’m now confused. should FCInv be 400 or 700?
wow good point noodle - Stalla’s Q’s added in the Depreciation expense as well as Schweser, but it doesn’t look like the CFA text does in the table you mentioned. Check out the table for problem #13 on page 402 of volume 4. It shows line items for depr and PPE: the change in PPE is 15 and depreciation in 2000 is 23. Then there is a separate line item below called ‘capital expenditures’ which equals 38. Looks to me like they added depreciation (23) to the change in PPE (15) to get 38. What gives?
I think “FCInv” amount to be substituted to calculate the FCFF depends on which financial statement is given to us in the vignette 1. Change in gross fixed assets (from BS) OR 2. Capex amount (from SoCF)
i’ve noticed that often times the vignette will tell you what capex is, making it easy to plug into the FCFF equation, but knowing that in Level 2, its nearly as much a test of judgment as well as knowledge, i’d have to say that the posters earlier in this string have a valid point analytically; without the fixed asset investment, there would not be an increase of acc dep, so therefore it seems to make sense to include both. (which would seem to be the case in problem 13 on p 402 of volume 4 in CFAI text).