Capital Expenditures
A Needed Expansion
Below we show the forecast for Ideko’s capital expenditures over the next five years:
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Based on the estimates for capital expenditures and depreciation, this spreadsheet tracks the book value of Ideko’s plant, property, and equipment starting from its level at the beginning of 20X5.
Investment is expected to remain at its current level over the next two years, which is roughly equal to the level of depreciation. Ideko will expand its production during this period by using its existing plant more efficiently.
In 20X8, however, a major expansion of the plant will be necessary, leading to a large increase in capital expenditures in 20X8 and 20X9.
The depreciation entries shown are based on the appropriate depreciation schedule for each type of property. Those calculations are quite specific to the nature of the property and are not detailed here. The depreciation shown will be used for tax purposes.
Note:
Firms often maintain separate books for accounting and tax purposes, and they may use different depreciation assumptions for each. Because depreciation affects cash flows through its tax consequences, tax depreciation is usually more relevant for corporate valuations.
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