Fixed Capital Investment Calculations between, Investment, difference, periods

meghanjackson

SImple subject, but seems to trip me up. Can anyone explain how to calculate FCInv for the FCF calculations when it isnt given straight up? I know we can find the difference in Gross PPE between periods if there were no purhcases or sales. For some reason i always mess it up when there are disposals and purchases so would appreciate any tips.

neil1234

Ok, the part which I don't understand is how do we account for depreciation if the gross PPE never changes. For example, if the company reports its gross PPE as say $100 million and never expands its production so never purhases ADDITIONAL PPE then we'll always use $0 as FCInv in our FCFF or FCFE calculations.

Eventually some of the PPE will come to the end of its life and will be disposed of for $0 and REPLACEMENT PPE bought. If we dispose of PPE originally purchased for $10 million and replace it with new PPE worth $10 million, then gross PPE won't change and therefore FCInv remains at $0.

Am I missing something?

Thanks

brainsX

happyen83 Wrote:
-------------------------------------------------------
> dont forget current year depreciation exp.

FcInv = delta(gross PPE)
or
= delta(net PPE) + current year depreciation

firat

dont forget current year depreciation exp.

b_sea93

can you post a problem? I think you get the idea....see how much gross PP&E went up....but if there is a little note that they sold some equipment, then thats an inflow, which offsets what we spent, so take the "net FCinv"

zephyranalyst

If you have gross PPE, then it's the change.

Gross PPE 20x1 = 10000
Gross PPE 20x2 = 15000

note: sold equipment for 2000

Well, FCInv would be 15000-10000 = 5000.

That's because the money you spent was 7000, but it was offset by the 2000 inflow.

Someone correct if wrong.

Gets more complex if net. Probably won't be asked.