# Question! FCFF and Sale of Equipment

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