depreciation used to finance CapEx? method, company, finance, only, like

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I read in the chapter about the forcasting of FCFE. They said under the method of component of free cashflow, with a target debt-to-asset ratio, the formula should look like:
FCFE = NI - (CapEX- Dep) *(1-DR) - WCInv(1-DR),
where DR is the debt-to-asset ratio.

The rationality behind (CapEx-Dep)*(1-DR) is, that depreciation can be used to finance CapEx. Hence company only needs to raise funds equal to (CapEx-Dp).

Why? Depreciation is non-cash component, isn't it? I did not major in finance in the university, hope my question is not too naive from view of yours:-(.



Edited 1 time(s). Last edit at Saturday, May 29, 2010 at 09:35AM by spenserzhou.