Schweser MQ30.2 Question 2

CFA Level II Equities
#1

In this question, why do we subtract gains twice (once from FCinv and once for the calculation of non-cash charges)?

The answer calculations in the book:

FCInv = ending net PPE − beginning net PPE + depreciation – gain on sale = 96 − 60 + 27 − 8= $55

NCC = depreciation − gain = 27 − 8 = $19

FCFE = NI + NCC − FCInv − WCInv + net borrowings = 50 + 19 − 55 − 4 + 0 = $10

#2

Gains aren’t cash flows; by subtracting it from FCInv and from NCC, the net result is zero.