Adjusting NI for gain/loss on asset sale / NET PPE net, decrease, includes, equipment

tango_gs

To calculate for FCFF one needs to adjust for non-cash charges. This includes gains/sales on assets. From the CFAI text:
"Gains and losses (e.g., of operating assets) are another noncash item that may increase or decrease net noncash charges. If a company sells a piece of equipment with a book value of $60,000 for $100,000, it reports the $40,000 gain as part of net income. The $40,000 gain is not a cash flow, however, and must be subtracted in arriving at FCFF. Note that the $100,000 is a cash flow and is part of the company’s net investment in fixed capital. A loss reduces net income and thus must be added back in arriving at FCFF."

I get the add-back/deduction to NI. However, the comment "[$100,000] is part of the the company's investment in fixed capital" is vague to me. Do I read that as either:

1. Solve for the Net FC Inv using a formula such as:
Beginning Net PPE - Depreciation +FC Inv (solve for this) - Book Value of Assets sold = Ending Net PPE. This doesn't seem quite right because the $100,000 does not figure in the equation.

OR

2. Do I add the $100K to the FC Inv I calculate above.

3. Or do I just ignore the $100K cashflow?

Thanks

mp3bu

the point they are making is that in the CFFI section there will be a couple lines there like:

Capital Expenditures -$200,000 ( ie. the new ppe bought)
Assets Sold +$100,000
Total Cash Flow From Investing -$100,000

so when you do your FCFF calc, your CFFI section will be understated by 100k, because it has the disposed asset in it. you have to back it out to get the true FCFF calc.