Hi guys,
If we have an equipement with book value@$6, we sell@10. thus gain=4
Yes, we shall substract the $4 gain from EBIT, but how is the $10 Cash inflow reflected in the FCFF?
the textbk says it is reflected in the FCInv (Vol4, Pg 205), how?
Assume this equipment never depreciate, thus the FCInv this year is ( 0 - 6 = $-6), thus increasing FCFF by $6, instead of $10.How is $10 reflected?
Thank you for your insights 
the FCInv this year is: Capex - Proceeds from sale ==> 0 - 10 = addition of 10 to FCFF
CAPEX= GROSS CLOSING VALUE- GROSS OPENING VALUE
Wrong… Beginning - DEP + Capex = Ending. so derive it from there. you are welcome
I’ll put it this way… Gain from sale of asset (4$) is noncash so you less it on CFO (“fake gain”), because it was accounted for in NI. the entire amount of the proceed must be assumed in CFI (10$ inflow) within FCINV. effectively FCFF increases by 6$.
(4) on CFO
+10 on FCinv
=6 on FCFF calc
Hi,
But the capex= End- Beg= 0 - 6 = -6
Proceeds= 10
Then the FCInv= -6 -10 = -16 ???
Hi,
I am using this formula.
Close=0
Open=6
Thus Capex=-6,
right?
Thus FCFF increase by+6,
But shouldn’t the FCFF increase by 10?
i mean if it is 6, that means the FCFF increase by 6 no matter what price the asset is sold?
Imagine the equipment was sold at 1000. FCFF should be higher.
Thus FCFF increase by+6?
But shouldn’t the FCFF increase by 10?
i mean if it is 6, that means the FCFF increase by 6 no matter what price the asset is sold?
Imagine the equipment was sold at 1000. FCFF should be higher than sold at 10, right?
no no no… i mean it is effectively plus 6 when calculating for FCFF from NI (which differs depending on sold asset) in your example if it was sold for 1000 remember NI also increases. i dont know what that is but
NI + int(1-T) + depamort + whatever else - 994 gain on sale - WC +1000 FCinv = FCFF
Hi, got your point.
Can I know how did you get FCInv=1000? (since End Book Value of PPE- Beg Book Value of PPE =0-6=-6)
Thank you so much!!