BU393 Chapter Notes - Chapter 17: Free Cash Flow, Capital Expenditure, Capital Asset

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Discounted cash flow valuation: similar to capital budgeting - forecast the free cash flows generated by company, then discount free cash flows at the weighted avg cost of capital (wacc) to arrive at value of company. Want to know the value of a company not a project. Nett refers to to net fixed assets at the end of year t (net property, plant and equipment) Net fi(cid:454)ed assets is the aggregate (cid:271)ook (cid:448)alue of all the (cid:272)o(cid:373)pa(cid:374)(cid:455)"s assets. Capex is the purchase price of new assets. Dep expense is related to fixed assets - makes sense to model dep as a function of fixed assets. Best approach : declining balance depreciation system. Dedu(cid:272)ts a fi(cid:454)ed % of a(cid:374) asset"s (cid:448)alue ea(cid:272)h (cid:455)ear. Necessary to find an expression for dep reate using historical income statement and balance sheet. Rearrange (download excels from textbook) to = Maintenance capex : the expenditure on assets to replace worn out equipment.

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