cfa II mock afternoon 2015 question 14

If anyone looked at the answer, as per the asnwer shown for the CapEx, why do you need to add back depreciation again?

So CapEx = Fixed asset (current year) = fixed asset (past year) +Depreciation?

If anyone can share their thought that woulf be awesome!



I will answer this question with an example.

Let’s say the fixed asset for the past year is $100. Depreciation is $40. So at the end of the past year, your fixed asset would be at $60.

In the current year, your fixed asset is $150, which means you will have spent $90 on CapEx ($40 to ‘replace’ the old equipment and $50 to purchase new equipment).

I don’t get this one.

I used the formula

FCFF = NI + DEP + INT (1-Tax Rate) - WCINV - FCINV and I can’t get the answer.

It seems like I’m tripping up over FCINV which I thought was just the change in Net fixed assets, but the solution adds back depreciation.

FCInv nets out to zero in the problem… The change is 1,282.90 but thats the exact amount of depreciation.