# FCFE Question

NI = \$50 WCinv = \$4 Beg Gross Fixed Assets = \$90; ending gross fixed assets = \$136 Beg Accumulated Dep = \$30; Ending accumulated dep = \$40 Depreciation expense = \$27 CAPEX = \$65 Net Borrowing = 0 In addition a piece of equipment with an original book value of \$19 was sold for \$10. The equipment had a book value at the time of the same of \$2. The gain was classified as unusual. Free Cash Flow to Equity is closest to: \$6 \$10 \$18 Can someone please explain the answer which is: \$10

possibly posted on wrong forum… 1 way of looking at it: An equipment on the books for 2\$ was sold for 10\$ - so gain on Sale was 8\$ Sales Proceeds = 10-8 = 2\$ Way 2: Net End PPE=Net Begin PPE+Purchases - Depr - Sales Proceeds Net end PPE=Gross End PPE - End Accum Depr =136-40 =96 Same way Net Begin PPE=90-30=60 CAPEX = Purchases = 65 So 96=60+65-27-Sales Sales = 60+65-27-96 = 2 Now in the FCFE Total FCInv = Purchases - Sales = 65-2 = 63 So FCFE=NI+Depr-FCInv-WcInv = 50+27-63-4 = 77-67=10

Good to see you active here as well CP. This stuff is in the Level I curriculum as well.