Why would you need depreciation from the year before? Ending should = Beginning - Depr + FCINV
If you assume no PPE were sold during the year (ie, anything you would need to depreciate), the change in PPE is depreciation. Think about it… if you don’t buy any new assets or sell any during the year, Ending NET ppe on the balance sheet will just change by depreciation. Depr flows through the income statement, and reduces equity. FC INV will be 0. Net ending = Net beginning - Depr
However, if they buy assets during the year this will be reflected in the change in net AND depreciation… they need to start depreciating whatever they purchased, which will be included in depr. So, net assets will increase by the amount of the purchase, but will be reduced by incremental depreciation (which is usually just included in the depreciation amount).
With PPE purchases, ending net ppe = beginning net PPE - depreciation of old assets + purchases(FCINV) - depreciation of assets purchased during the year. But, the two depreciations are usually combined together into total depreciation expense for the year. so, ending net = beginning Net + purchases - depreciation
OR, FCINV = Net Ending - Net Beginning + depreciation. If the firm purchases more assets than the amount of depreciation, the difference in Ending PPE - Beginning will be positive. (In forecasting FCFE, this is an idea the forecasting of FCINV is based off of, that as a firm grows, it will consistently invest an amount in PPE over and above depreciation expense, hence the use of FCINV - Depreciation)
When assets are sold, there is another wrinkle added. Sometimes they give you value of what was sold, sometimes you need to calculate it.
ending NET = beg NET + purchases - BV sold - depreciation. It is the book value of sold in this equation, because the sold asset, if you have NET PPE, will be included in the Beginning PPE at its net, or book, value
FCINV = Capex (or purchases) - Proceeds from sale. Notice you subtract the proceeds, not the gain or BV. If given these separately, they need to be calc’d. For instance, you might seen a gain on sale on the I/S, and be able to calculate purchases. You need to be given at least or at least be able to figure out one of these, though.
If they sell something but dont make any purchases, then FCINV will be added to cash flows by the proceeds from the sale (this cant continue indefinitely, keep in mind)
