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ok. so the question i am doing is on calculating/forecasting FCFE. (its question 17 in the latest bpp kit)
they have given current SOPL and SOFP and growth rates of revenues/cos etc.
i have 2 questons and i will ask one right now and the second later after u have replied.
question 1
the SOFP showsOpening NCA .. 1200
Additions ……………66
total NCA …………1266the question states: “the company will not dispose of its NCA but will increase its investment in the new NCA by 20% per annum. the company’s depreciation policy matches the current available tax write off for capital allowances. the straight line write off policy is not likely to change”
so, when in order to forecast the sopl we need depreciation.
when i read “20% per annum”, i took 20% of 1266 but the answer increases 66 at 20%
why doesnt the 20% apply to the full figure of NCA?
thanks
The wording is a bit confusing, but strictly it is correct.
It says that the investment in new NCA’s will increase by 20% – not that the investment in NCA’s will increase by 20%. It is the placing of the word ‘new’ that makes the difference.
ok… i shd have understood this on my own…
ok.. question 2:
wd the following be correct:
FCFE = FCF – interest – debt + tax savings on interest?
thanks
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