In CFAI v4 p.406 there is a question (#7) where you’re supposed to calculate FCFE. Projected fixed and working capital investments are $170m and $40m respectively. Depreciation will be $90m. The company is going to borrow 40% of the cost of FCInv and WCInv. When they calculate FCFE in the answer [A-36] the Net Borrowing part is 0.4*(170-90+40) My question is: why is the fixed income investment reduced by the depreciation expense when we calculate ‘Net Borrowing’?
because they tell you in english in the problem: Co. will finance 40% of Net fixed assets (Assets - depreciation) and net working capital with…
cpk123 Wrote: ------------------------------------------------------- > because they tell you in english in the problem: > Co. will finance 40% of Net fixed assets (Assets - > depreciation) and net working capital with… BOOM goes the dynamite!!!
oh damn i wrote all the numbers down on a separate sheet, i guess i didn’t copy it