Fixed Capital Investment 2011, 2010, Investment, difference, different

sgupta0827

There seems to be many different ways of calculating Fixed Capital Investment for FCFF. I always thought it was the difference in the Gross Fixed Assets. I’ve also seen when Fixed capital is presented as Net and the method used was adding current depreciation expense onto the current year Net Fixed Assets minus Net Fixed Assets (eg. Net  2011 + dep exp 2011 - Net  2010). In the BSAS mock, they just use the difference between Net Fixed Assets. This differs to the methodology used in FCFF question on the CFA mock, where they add current dep exp?? Can anyone make any sense of this?

defour44

The formulas presented are correct but give me a tough time in memorizing the +/- signs and which way they go. I prefer to do it the grade school way of a vertical Equation and then solve for FCInv. It feels more intuitive that way.
Beg Net PPE
(-) Depreciation
(?)FCInv
——————————-
=Ending Net PPE(usually given on a b/s statement or its just End Gross PPE less End Accumulated Dep)


Whatever gives you FCInv you then plug into your FCFF or FCFE formulas e.g
FCF=  CFO + int(1-t) - {(?)FCInv you solved }
It dosn’t matter if they sell an Asset for a gain or loss or whateva because the equation still holds. Just rember to hold what ever sign you get once you plug it into your respective  FCFF/FCFE calculation.
The only way this method fails is if they ask specifically  for the FCInv in a question. If that happens then FCInv is just Capex - Proceeds from sale.

RealEstate_CFA

N/M - its the same

canadiananalyst

Wouldn’t the book value be reflected in the Net #’s, not the gross?
Ending net = beginning net - depreciation + purchases - book value?
And then gain/loss added/subtracted with book value?
So CapEx would be Purchases - Book Value of assets sold - (+) gain (loss)

Bad5shah

to validate my point look at page 144 schweser equitities book

trogulj

two ways
End Gross PP&E - Beg Gross PP&E - Gain on sale
End Net PP&E - Beg Net & PP&E + Depreciation - Gain on sale
If loss on asset, add it back.

Daniel1985

if there is a gain subtract from NI. If there is a loss add

Nishant1

what about if there are sale of assets?

zephyranalyst

On another note, sometimes if they provide net fixed asset, it’s easier to just calculate the delta from there and  use the figure for FCFF or FCFE calculation w/o the need to separately find DEP and FCInv as (DEP - FCInv) = - (change in net fixed asset)

joehogue

Thanks KewZee, it looks to be an error in the BSAS 2012 mock