a very important question

about proceeds from sales of long-term assets common sense is that this should NOT be included in FCFF or FCFE right? but on the book 4, page 199: it says 1. FCInv = capital expenditures - proceeds from sales of long-term assets (it DOES include the sales proceed) 2. Note that if long-term assets were sold during the year, any gain or loss on the sale is handled as a non-cash item as previously discussed. 3. Noncash charges are added back to net income to arrive at FCFF because they represent expenses that reduced reported net income but didn’t actually result in an outflow of cash. So my conclusion is that 1. gain(loss) from selling or disposing PPE, should be subtracted (added) from Net income first, right? 2. Fixed asset investment, is still the CFI, which is the capital expenditure + inflow (outflow) of asset disposition? right? correct me if I am wrong… trust me, I am positive that it s gonna be on test…

Correct! And you’re probably right about it being on the Exam. It seems to be a big focus in other Schweser notes I have. They are looking for net FCINV , which is new purchases of PP&E offset by a sale of long term assets.

What I found on CFAI book says that the sales proceed is a cash flow. but the gain or loss on sales is not a cash flow, but are charged on Net income… also since it is unusual, it is below line? Say you have PPE BV=6, you sold it for SP=10. you record 4 as gain on net income statement. Then, 10 is your cash flow, but 4 is not a cash flow, therefore should be subtracted from NI just like other NCC. The difference is that other NCC like depreciation is added, but gain on selling PPE is subtracted. It has NOTHING to do with one-time charge adjustment. I used to categorized this kind of adjustment to normalization. but I was WRONG. However, think from another prospective, to get CFO, NI will be adjusted for non-operating gain or loss, like selling of PPE, right? then say FCFE = CFO-CFI+NB?

following your example, lets say NI was 20, dep is 5, FCFF = 20 + (5 - 4) (NCC) + 6 (FC INV) ?