kickthatcfa

Depreciation is non-cash, so it is added back from net income. Capital expenditures are not measured in net income, and they are a cash outflow, so they are subtracted to get to FCFE. The rational isn't that the depreciation pays for capital expenditures, but that they just net off as one is a positive and one is a negative. The excess of CAPEX over depreciation is a real cash expense that must be paid for, while all of the CAPEX before that can essentially take the place of depreciation in the net income calculation.

I could go into an explanation about replacement projects vs. growth projects, but eh, I don't really feel like it.