present value and economic income Return to the setting of Table 15.1. Using a discount rate of 12%, we know the project has a present value of 26.284. Investing 383, at t = 0, brings an immediate gain of 26.284, as the forthcoming cash flow has a present value of 409.284.

Suppose, then, we invest and irnrnediately write up the asset value to equal its present value of 409.284. This irnplies a period t = 0 income of 26.284. From this point, calculate economic depreciation and econornic income for the asset, presuming an interest rate of 1?%. Carefully contrast your income numbers with those reported in Table 15.4. Does each income series sum to the net cash flow?

AppendixLO1