An analyst collects the information below regarding a company for use in a discounted free cash flow model:
Net income for common shareholders 90
Interest expense 23
Increase in accounts payable 3
Increase in accounts receivable 7
Decrease in inventory 10
Preference dividend paid 5
Gain recognised after sale of asset 8
Marginal tax rate 25%
Depreciation expense 10
Fixed capital investment 12
FCFF is closest to : 108.25
I am struggling to understand why the gain is to be removed. This is related to NCC addition and removal from NI but I don’t get it.
It is even more confusing as sometimes the gains on sales from assets are deducted from the cost of capex.
Can someone explain this?