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Forecasted depreciation expense, commonly estimated as: [(Current year depreciation expense / Prior year PPE, net) x...

Forecasted depreciation expense, commonly estimated as: [(Current year depreciation expense / Prior year PPE, net) x Current year PPE, net], is added back to net income in the cash flow from operating activities section of the Statement of Cash Flows.

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Answer #1

THE answer is TRUE, and the depreciation exp is added back to NET Income in operating activities in cash flow

Forecasting depreciation on the fixed assets is considered as a slightly difficult task. Because if you are trying to make assumptions in estimating percentage of depreciation, it won't really make sence for building a financial model.

Hence i would suggest you to follow the below approach to make it more reliable.

The amount of depreciation that you are gonna forcast depends on the amount of investments that you are going to make in future years. So, try to forecast the values that the company is going to deploy in its investments YOY basis. I think this part will not be that much hard, because the historicals will help you in that.

From the above step, find out the amount of fixed assets by considering historical values and previous year net investments.

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