I tried to solve problem on FCFE (Page 402) .Here is the information relevant to the question ------------------------------------------ balance sheet 1999 2000 Net property, plant, and equipment 474 489 I thought there is increase in capital expenditure of (489-474= 15). However, they also gave the following at the bottom and I did not see it Capital expenditures 34 38 In the answer they used 38 as value. I saw other examples where you subtract gross fixed capital from last year to this year to obtain change in fixed capital. What is problem for this inconsistency? I want to make sure to understand so that I don’t make mistake in exam. Thaks, Chinni
it might be related to adding back depreciation as a non-cash charge. i guess the equipment that was sold depreciated by 13 during the year before it was sold.
For starters, you should specify the book (CFAI book 4). To your point, my understanding is that the formula you described works when you take gross (not net) fixed assets (not PPE) and subtracting depreciation.
Agree with Black Swan… If you’re taking the difference in Gross fixed assets, that can be used as Capex. However in this case, the number given is Net Fixed Assets. You must take the Capex of 38. Maratikus: Assuming capital exp of 38 - depreciation works out to be 23 …not 13. Old Fixed Assets + Capex - Depreciation = New Fixed Assets. 474 +38 - x = 489 Therefor Dep must be 23. I do not think there is any sale of assets, as the answer has used the entire 38 of capex as Fixed Capital Investment. If sale had happened, there would be proceeds from the sale that would be subtracted from the 38 to get to Net FCInv… hope this clears the doubt…
After reading your replies, I understood now. The thing I need to remember is the key words GROSS and NET. If I don’t see GROSS in balance sheet, I will look for additional information. Appreciate your response.
you are right, mumukada. i realized that i messed up in my calculations after I posted my answer but couldn’t got back and edit it.