If 20% of the net investment in assets is financed with debt.
FCFE = NI - 0.8 (FCInv - Dep ) - 0.8 WCInv
Why shoud the Dep be deducted?
I use the formula:
FCFE= NI - FCInv -WCInv + Net Borrowing
= NI - FCInv- WCInv + 0.2 (FCInv + WCInv)
= NI - 0.8 FCInv- 0.8 WCInv
Why is it wrong?
Thanks for posting~
you formula is wrong (no dep)
FCFE = NI + dep - WC - FC + net borrowing
if ALL capital is financed at 20% debt then basically, mathematically net borrowing is 20% of dep, WC, and FC
depreciation is included because it is a calculation from capital (subracting from asset) to begin with.
FCFE = NI + 1 (dep - WC - FC) + .2 (dep - WC - FC) = NI + .8dep - .8WC - .8FC
Yes, you are right!
Thanks for explanation and best luck in the exam