In the formula to forecast FCFE:
FCFE = Net Income - (1-Debt / Assets)*(FCInv.-Depr.)-(1-Debt / Assets)*WCInv.
I rearrange the terms to get:
FCFE = Net Income - FCInv. -WCInv. + Depr. +Debt / Assets*(FCInv.+WCInv.-Depr.)
I assume the last terms Debt / Assets*(FCInv.+WCInv.-Depr.) correspond to Net Borrowing, which makes sense for Debt / Assets*(FCInv.+WCInv.) assuming that’s the portion of the investment financed by debt, but why Debt / Assets*Depr? We don’t need to finance depreciation right?
Thanks.