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.