Los 45.d

Question 1

What financial statements are used to forecast capital investments in tangible and intangible assets? What should these investments be divided into for more accurate forecasts?

Answer 1

Cash flow statement (for acquisitions and dispositions) and income statement (for depreciation and amortization).
Capital expenditures should be divided into maintenance( for sustaining the business) and growth(to expand the business).

Question 2

What is usually the starting point for forecasting capital spending for maintenance? What should be considered when estimating these expenditures?

Answer 2

Historical depreciation. The expected inflation rate should be considered, as replacement costs tend to rise with inflation. Growth capital expenditure forecasts are more discretionary and are tied to management’s expansion plans and revenue growth.

Question 3

How can depreciation and amortization be forecast?

Answer 3

By using the net book value of property, plant, and equipment and the estimated useful life of the asse

Question 4

What is required to forecast capital expenditures for growth?

Answer 4

An understanding of management’s future business and revenue growth strategies