Dear All,
I am currently reading Simon Benninga’s 3rd edition Financial Modeling Book. I need help from anyone who has read and practiced the exercises given in this book:
The calculation of depreciation apparently doesn’t makes sense. In chapter 3 and subsequently in Chapter 4, depreciation is calculated as follows:
Depreciation = Average Gross Fixed Assets (Current year value+Previous year value / 2) * Depreciation rate
And the calculation of Average Gross fixed assets is dependent on the calculation of Net Fixed Assets and Accumulated Depreciation.
Gross Fixed Assets = Net Fixed Assets + Accumulated Depreciation
Formula for Net fixed assets is
Net Fixed Assets = Net Fixed Assets/Sales * Sales
BUT for Accumulated Depreciation I need the current year’s Depreciation figure which I can’t calculate unless I have the gross fixed assets figure.
So basically the formulas for Gross fixed assets and Depreciation are interdependent??
Also when I just insert the formula given in the book, it gives the following warning:
Circular refernce error which basically means I am inserting a formula that depends on its own result for its calculation
Please help. Thank you.