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Consider the following proposed investment and expected cash flows (000s): Year: 0 1 2 3 Cash Flow (millions of s): -2520 1092 1253 1435 Using
Consider the following proposed investment and expected cash flows (000s): Year: 0 1 2 3 Cash Flow (millions of s): -2520 1092 1253 1435 Using straight-line book depreciation, annual depreciation will be 840. The discount rate is 10%. Calculate Economic Income in each year. Compare Economic Income with Book Income, and suggest which should be used to evaluate performance. Considering the strong estimated growth, explain why Economic Income could be more representative.
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