BU393 Lecture Notes - Lecture 17: Capital Expenditure, Cash Flow Statement, Net Income
Document Summary
Use the following two equations to find an expression for the depreciation rate, dr, that is based on values from the income statement and balance sheet. With declining balance depreciation, the depreciation expense is: Step 2: next, we want to remove capex from the resulting equation because it isn"t a value on the income statement or balance sheet. To simplify this further, we see from re-arranging eq. Use this equality to replace (nett 1 + capext) anywhere it appears in the result of step 1. (there should be two replacements. ) Step 3: simplify for dr. dr = deprt/(nett 1 + capext) dr = deprt/nett-1 dr = deprt/nett dr = deprt/(nett + deprt) Nett = nett 1 + capext - dr (nett 1 + capext) Nett = nett + deprt - dr (nett + deprt) dr = deprt/(nett + deprt) Notes: the first choice is not correct because capex isn"t on the income.
