4. Assume an asset with a book value of $4,000 has the following projected income statements….

4.    Assume an asset with a book value of $4,000 has the following projected income statements. There are zero taxes. The cost of equity is 0.10. The expected residual value at time 3 is $1,331.

 

 

1

 

2

 

3

Revenue (Cash)

$1,600

 

$1,400

 

$1,200

Depreciation

1,000

 

1,000

 

1,000

Income

$  600

 

$  400

 

$  200

 

a.     Compute the PV using the cash flows.

b.    Compute the economic incomes of each year.

c.     Compute the PV using economic incomes.