Adley- Week2 DQ2 Initial Reply
Capital expenditures (CAPEX) are actual expenses incurred to purchase or maintain property assets. These cash outflows are capitalized on the balance sheet, shown as depreciable expenses on the income statement, and deducted over an IRS-specified term of 3-7 years. Explicitly regarding pro forma analysis, CAPEX are projected costs to maintain the asset in good repair, and a line-item section under improvements of the depreciation schedule, along with tenant improvements (TI). Moreover, CAPEX will vary year to year based on “wear and tear” and planned capital improvement projects, and can be calculated by a percentage of revenue, square foot, or unit. As a result, Linneman (2011) notes that “Forecasted cap ex reflects expectations about future outlays; forecasted depreciation reflects the application of depreciation rules to past outlays” (p. 54)…