Question #53
Reading: Reading 21 Free Cash Flow Valuation
PDF File: Reading 21 Free Cash Flow Valuation.pdf
Page: 27
Status: Unattempted
Part of Context Group: Q53-57
First in Group
Shared Context
Question
Using the information available in Exhibit 1, capital expenditure for Fishy Discs is closest to?
Answer Choices:
A. £20,000
B. £30,000
C. £50,000
Explanation
FCINV = change in carrying value + depn expense – gain on disposal
FCINV = 26,000 + 14,000 – 20,000 = 20,000
Alternatively
Compute additions to PP&E as a residual figure:
FCINV computation
PP&E 20x8
202,000
Proceeds (plug)
30,000
Depreciation
(14,000) Carrying value
(10,000)
Disposal
(10,000) Gain/(loss)
20,000
Additions (plug)
50,000
PP&E 20X9
228,000
FCINV = £50,000 – £30,000 = £20,000
Note that additions and proceeds have been computed as residual (balancing) figures.