CFA Level I · CFA Level I Exam · Financial Statement Forecasting in Equity Valuation
A firm has beginning net PP&E of 500 million, forecast depreciation of 60 million, and forecast capex of 110 million. It also sells equipment with book value of 10 million at no gain or loss. Ending net PP&E is closest to:
Ending net PP&E is about 540 million: beginning 500 plus capex 110, less depreciation 60 and less the 10 million book value of equipment sold. Ignoring the disposal would wrongly give 550 million.
- A540 millionCorrect
- B550 million
- C560 million
Explanation
Ending net PP&E = 500 + 110 − 60 − 10 = 540 million. Ignoring the disposal gives 550 million; omitting depreciation too gives worse errors.
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