i’m looking at this problem and I think the PP&E is confusing me…
Net income: 50
WC investment: 4
begin gross fixed asset: 90 / end gross fixed asset: 136
begin accum depreciation: 30 / end accum depr: 40
depr exp: 27
net borrowing: 0
one equip with original book value of 19 sold for 10. Book value at time of sale was 2. gain classified as unusual.
what is FCFE?
the answer is 10 but i’m not clear on how the PP&E and the gains work in this example…
thanks!
End. Gross PP&E = Beg. Gross PP&E + PP&E Purchased − Gross PP&E sold
136 = 90 + PP&E Purchased − 19
PP&E Purchased = 65
FCInv = PP&E Purchased − Cash for PP&E sold
= 65 − 10 = 55
FCFF = NI + Losses − Gains + NCC − FCInv – WCInv + Net Borrowing
= 50 + 0 – 8 + 27 – 55 – 4 + 0
= 10
so basically you can just ignore the accumulated depreciation information?
Only because they told you the book value of the equipment sold. They didn’t have to tell you that; you could use the A/D information to get it.
Just a little confused on the essentially 2 times of calculation for the PP&E sold? one is using gross and you subtract again cash PP&E sold? thanks
hi there S2000M, thank you in advance:
Can we make it also like this:
NI - change in WC- change in gross PPE + change in depreciation = 50 - 4 - 46 + 10 = 10 ???
If so, why would we see the change in accumulated depreciation and not depreciation expense?
Why does depreciation expense differ from the change in accumulated depreciation (10 vs 27)?
Anybody?
Depreciation Expense is the “current depreciation” based on value of the various assets on your book.
Accumulated Depreciation - is the accumulation of all Depreciation in the past.
If you sold a very high priced equipment that you had on your books before - and now replaced it with a cheaper equipment - your depreciation expense in the current year would be lower - when compared to the higher depreciation you had charged on the equipment you had replaced.