CFAI readin 34 EOC 13

CFA Level II Equities
#1

Hello All,

In CFAI Equity Reading 34 EOC 13A, can someone explain why the investment in WC in 41? I can see that

(489-474) is the increase in net PP&E. WcInv is increase in net PP&E + Depreciation, so (489-474+23)=38. If we add the increase in depreciation (23-20) to 38, we get 41. The other 38 is the cap ex which is given for 2008. Why should

Wcinv = delta(net PPE) + depreciation(2008) + delta(depreciation) ?

I have a feeling I got it all wrong but I cannot think anymore today.

Thank you,

P

#2

Seems like you get confused b/w WC and Fixed Capital investment.

  • WC = ∆(CA excluding cash) - ∆(CL excluding ST liab) = ((326-5)-(201-5)) - (141-57) = 125 - 84 = 41 --> nothing to do with depreciation at all!
  • Fixed capital inv or net capex = ∆gross PPE = ∆net PPE + dep = (489 - 474) + 23

Hope it makes sense.

#3

Wow! I did get it all wrong. Thank you Lili for the explanation. Great help!