Calculating FCInv when there is an asset sale

CFA Level II Equities
#1

Can someone please clarify if my formula is correct for calculating FCInv in the FCF formula when there’s an asset sale?

FCInv = ending gross PP&E - beginning gross PP&E - gain from sale

or

FCInv = ending net PP&E - beginning net PP&E - gain from sale + depreciation

I was solving a problem with this formula and didn’t come out right.

Thanks

#2

its not just Gain from sale. its the proceeds from sale so that is bookvalue plus gain.

#3

Isn’t proceeds from sale only subtracted if calculating FCInv using CF figures?

FCInv = capital expenditure - proceeds from sale.

Thanks

#4

This is correct.

#5

Yes,

FCInv = Capex - proceed from sales

FCInv = Net PPE End - Net PPE Bng + Depreciation - Gain from sales

FCInv = Gross PPE End - Gross PPE Bng - Gain from sales

I was really confused over this and struggled with it a long time. Schweser does a shit job of explaining this but in one of their challenge questions in the FCF chapter helped illustrate this.

This makes sense because capex is a periodic cash out, and proceeds is a cash in, this is actually pretty much what the stmt of CF from Investing. On the other, if you are given gross or net PPE, when you sell an asset, the book value is already taken into account by the change in PPE (the BV is removed from balance sheet after sales), so you just have to account for the gain part.

#6

Ya i agree with Ryohko. In that other long problem, which some of you have probably seen regarding FCFE, the answer would be 250 instead of 255.

Net and Gross PPE already account for loss of BV in the BS from sales. Doesn’t account for the excess of selling price over BV

#7

Thanks, that one problem which I believe you are referring to completely threww me off.

Thanks for clarifying it all.