 # FCFE q

Gross BegPPE 90 + purchases during the year ( bal fig)? -sale of during the year ( gross) 19 ---------------------------------------------- End gross PPE 136 ----------------------------------------------- Purchases during the year bal figure (65). though they have given this information in the question. Beg Accu Deprn 30 +Deprn during the year ( bal fig) ? - accu deprn on the sold asset 17 ----------------------------------------------- End accu deprn 40 ----------------------------------------------- Deprn during the year bal figure (27). This was also given in the question. NI includes unusal gain of 8 ( this is not net of tax) we need to subtract this from NI = 42 (50-8) Now if they would have given tax rate then I would have substracted 8(1-T) irrespective where it was classified in income statement. This was all accouting now moving to cash flow. First we need to calculate net cash flow on PPE PPE bought (65) PPE sold 10 -------------------- Net FI Inv (55) ------------------- Now the final ans FCFE = NI + NCC - FCInv - WCInv + NB =42 + 27 - 55 - 4 + 0 ANS B 10 Apologies if the format is not good.

Hi, This argument is very helpful. Does anybody know where in Schweser books I can find the following formula that dinesh.sundrani used? CAPEX = EndPPE - BegPPE - change in Accum Depreciation + Depreciation Expense + salvage Thanks in advance!

He derived it himself I believe.

Correct, I derived it myself. It was not from the book and I don’t know if that is atleast 1% correct.

so for FCF calculations we always adjust for unusual or extraordinary items (would that not be normalizing FCF). Second point, what if the sale was not catagorized as an unusual item, would it then be included in capex?

anyone?

What if one just ignores some of the information and computes FCFE as FCFE = 50(NI) + 10 (Dep 40-30) - 46 FC (136-90) - (4) WC = 10 (get the same answer) In what situation this SIMPLISTIC way of looking can be wrong? But if you want to see the impact of sale then it will affect. NI : Reduce by gain of 8 =>42 Dep: Add extra 17 (19 OrigCost - 2 Book Value) =>27 FC: Add extra 9 ( 19 Original Cost - 10 Sale Price) =>55 FCFE= 42(NI) + 27 (D) - 55 (FC) - 4 (WC) = 69-59=10

raky Wrote: ------------------------------------------------------- > What if one just ignores some of the information > and computes FCFE as > > FCFE = 50(NI) + 10 (Dep 40-30) - 46 FC (136-90) - > (4) WC > = 10 (get the same answer) > > In what situation this SIMPLISTIC way of looking > can be wrong? change in accum. dep. = dep. expense - accum. dep. on sold PPE. change in gross PPE. = capital expenditure - gross value of sold PPE. FCFE = NI + change in accum. dep. - change in gross PPE -WC+NB =NI + dep. exp. - accum. dep. on sold PPE. - (capital expenditure - gross value of sold PPE. ) -WC+NB =NI + dep. exp. - capital exp. +(gross value of sold PPE. - accum. dep. on sold PPE.)-WC+NB = NI + dep. exp. + salvage BV of sold PPE.- capital exp. -WC+NB or it can be further transformed into = NI + dep. exp. + (sale price - gain on sales).- capital exp. -WC+NB = (NI-gain on sales) + dep. exp. - ( capital exp. - sale price) - WC+NB F**king exactly the same!!! but way more intuitive!!! So my fomular to this messy problem is changed to FCFE = NI + change in accum. dep.- change in cap exp. -WC +NB. that’s so simple, and easy to remember.

I get B FCFE = 50 + (27-8) + (-65+10) - 4