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