Schweser Exam 1 AM Book 2 only, question, getting, change

Beatnik

Just wondering, volume 2, exam 1, am, question 15. Why do they multiply change in revenues by .04 to get capex? I ended up getting the question right as it was the only negative option… but if all 3 options were negative I might not have taken that answer so its good to know but the book doesnt explain it.

kasinkei

The question says capex will equal depreciation plus approx 4% of the firm’s incremental revenues. Capex = 1% * (22M*1.07) + 4% * (22M*1.07 - 22M)

former

wow I must have stopped reading at the 4% part…. thanks!