Schweser, Book 4, Page. 132: In the comments right below Figure 2 the following comment is made: “FCInv is then the plug figure for each year so that hte beginning net PPE minus depreciation plus FCInv equals ending net PPE” I’m not understanding how to calculate the FCInv plug. Up to this point, the only two variables we know how to calculate are: Real net PPE (beginning), Real Depreciation and Real Net Working Capital. The example gives no directions regarding the value of Net PPE (ending). Real net PPE (beginning) + (Real Depreciation) - Real FCInv = Real net PPE (ending) How do we calculate a plug figure when two variables are unknown?
For every year you have Real PPE Net = Revenues * 30% look for Year 1: Real PPE Net Beg = 300 Real PPE Net End = 309 = Real PPE Net Beg for Year 2 Real Depreciation = 300/4 = 75 So now : 300 - 75 + FCInv = 309 So FCInv = 75 + 9 = 84
Oh wow, I can’t believe I missed that. Thanks cp!
wht is the different btw FCInv Plug and real FCInv? In real FCInv calculation, why we can’t just take the change in net PPE? why we have to add back current year depreciation into in change in net PPE to get real FCInv??
net PPE = Gross PPE - Accum Depr. Gross PPE is what shows the amount invested in FCInv.
Will they ask a question on emerging market valuation? There are like 8 total steps in the FCF formula and changing between nominal and real solving a problem takes atleast 10-15mins if you are fast.