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?

luckygiftvn

Depreciation expense is definitely added back to Net amounts to account for used up portions of fcinv. Think of it like eating chocolate bars: I started with 5, ate 2, and ended up with 4. How many did I buy? 4-5+2=1. Same concept as inventory accounting.

joehogue

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

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)

Nishant1

what about if there are sale of assets?

Daniel1985

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

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.

Bad5shah

to validate my point look at page 144 schweser equitities book

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)

RealEstate_CFA

N/M - its the same