Forecasting Fixed Assets and Depreciation

Forecasting Fixed - 1 t t t 1 t sales sales assets fixed net assets fixed net = We then proceed by assuming that the ratio of depreciation expense

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
FIN 340 Forecasting Fixed Assets and Depreciation Prof. David Allen There are two general approaches for forecasting fixed assets and depreciation when using the percent-of-sales method. Method 1 We start by assuming that the ratio of gross fixed assets to sales is constant over time. 1 t 1 t t t sales assets fixed gross sales assets fixed gross + + = Our forecast is then: 1 t t t 1 t sales sales assets fixed gross assets fixed gross + + = We then proceed by assuming that the ratio of depreciation expense to gross fixed assets is constant over time. 1 t 1 t t t assets fixed gross expense on depreciati assets fixed gross expense on depreciait + + = Our forecast is then: 1 t 1 t t 1 t assets fixed gross assets fixed gross expense on depreciati expense on depreciati + + + = And: 1 t 1 t 1 t expense on depreciati assets fixed gross assets fixed net + + + - = Method 2 We start by assuming that the ratio of net fixed assets to sales is constant over time. 1 t 1 t t t sales assets fixed net sales assets fixed net + + = Our forecast is then:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 t t t 1 t sales sales assets fixed net assets fixed net + + = We then proceed by assuming that the ratio of depreciation expense to net fixed assets is constant over time. 1 t 1 t t t assets fixed net expense on depreciati assets fixed net expense on depreciait + + = Our forecast is then: FIN 340 Forecasting Fixed Assets and Depreciation Prof. David Allen 1 t 1 t t 1 t assets fixed net assets fixed net expense on depreciati expense on depreciati + + + = Since we have net fixed assets and depreciation for year t+1, we work “up” the balance sheet and solve for gross fixed assets: 1 t 1 t 1 t expense on depreciati assets fixed net assets fixed gross + + + + = Note that in the last equation, we are adding depreciation expense....
View Full Document

This note was uploaded on 10/22/2010 for the course FIN 340 taught by Professor Davidallen during the Spring '10 term at N. Arizona.

Page1 / 2

Forecasting Fixed - 1 t t t 1 t sales sales assets fixed net assets fixed net = We then proceed by assuming that the ratio of depreciation expense

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online