CFI Financial Modeling And Valuation Analyst (FMVA) Practice Exam

How is Ending PP&E computed in BASE analysis?

Ending PP&E = Beginning PP&E + Additions - Depreciation Ending PP&E = Beginning PP&E - Additions + Depreciation Ending PP&E = Beginning PP&E + Net Income - Depreciation Ending PP&E = Beginning PP&E + Impairment - Depreciation

Correct Answer:

Ending PP&E = Beginning PP&E + Additions - Depreciation

Explanation:

Ending PP&E shows the net value of property, plant, and equipment at the close of the period. It changes mainly through two items: capital expenditures (additions) that increase the asset base, and depreciation that reduces it over time. In a typical BASE analysis, you don’t directly adjust PP&E with net income or with impairment unless those items are explicitly included in the model. So the straightforward way to compute ending PP&E is Beginning PP&E plus Additions minus Depreciation. For example, starting with 100, adding 20 in capital expenditures, and recording 5 of depreciation yields an ending PP&E of 115. Impairment would lower the ending value if included, but the standard approach shown here uses only additions and depreciation.

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