CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling
An analyst forecasts a company's beginning net property, plant and equipment of 500 million, capex of 120 million and depreciation of 80 million, with no disposals. Ending net PP&E is closest to:
Ending net PP&E is about 540 million. Start with 500 million, add capex of 120 million and subtract depreciation of 80 million. Adding depreciation instead would wrongly give 700 million, and reversing the signs gives 460 million.
- A460 million
- B540 millionCorrect
- C700 million
Explanation
Ending net PP&E = 500 + 120 − 80 = 540 million. Subtracting capex and adding depreciation gives 460, a sign error. Adding both gives 700, ignoring that depreciation reduces the asset.
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