Do we use change in Gross PP&E over the year or change in Net PP&E?

ex.

Depreciation 2012 = 100, Net PP&E 2012 = 800, Net PP&E 2011 = 700

NI 2012 = 2000, INT(1-t) = 200, WC = 50

So in our FCFF calculation (NI + NCC + INT(1-t) - FC - WC), is it FCFF = 2000 + 100 + 200 - (800-700) - 50 = 2150, or FCFF = 2000 + 100 + 200 - (800-700+100) - 50 = 2250

I think the second one is correct,

given FC=PP&Eend-(PP&Ebeg-Depr)

Second one. You want to back out the non cash charges.

CFI is change in GFA - it’s the amount used for purchasing fixed assets. Change in NFA captures both the change in GFA and Depreciation Expense. So, if given Change in NFA, add depreciation expense. Here’s why:

GFA - Accumulated Depreciation = NFA

So, Change in GFA - Change in Accumulated Depreciation = Change in NFA

Change in Accumulated Depreciation = Depreciation Expense.

So, Change in NFA + Depreciation Expense = Change in GFA

Thank you for the clarification

One of the questions on the CFA mock uses net investment in FC to calculate FCFF. Check out the Alahtab scenario (AM Q3)

And also, in CFAI’s explanation they used EBITDA to calculate FCFF, then used FCFF to calculate FCFE. But if you use the FCFE equation NI + NCC - FC - WC + NB you get 120 + 82.5 - 165.3 + 1.8 + 12.5 = 51.5. UGGHGHGHGHG.

^ I ran into the same problem. I tried calculating the direct way and couldn’t find the answer. So I then used EBITDA to calculate FCFF then used that to calculate FCFE. There is either something we are missing or it’s a mistake by CFAI.

Considering the other mistakes in the exam, I think we know the answer to that