Module 20.3 LOS 20.h: Economic Income in capital budgeting

A project’s economic income is the after-tax cash flow plus the change in the investment’s market value. Interest is ignored for cash flow calculations and is instead included in the discount rate.

economic income = cash flow + (ending market value − beginning market value)


economic income = cash flow − economic depreciation


economic depreciation = (beginning market value − ending market value).

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