I know how to get the after tax operating cash flow but what about the change in market value that needs to be added? or how do I calculate economic depreciation?
You take the difference in cash flows of the economic incomes and discount to PV.
I dont get it. I do not know what the economic incomes are…
Only the operating cash flow aspect.
To find the Economic Deprecation at Year 2, assuming there’s 5 years:
Σ EI (PV years 2 to 5) - Σ EI (PV years 3 to 5)
But to do this, I would need to know how to calculate the change in market value, correct? So how do I do that? EI or the sum of it for various years includes the missing variable I do not know how to calculate; hence, I cannot find the PV of EI. Know what I mean?
Sorry, I mean CFs
Sum of the PV of CFs
EI2 = CF2 - (Sum of PV of CF(2-5) - Sum of PV of CF(3-5))
ahh okay, after tax operating cash flows, Correct?
Yes After tax… there are examples in the book. Also, when you calcuate the 2nd summation, its the present value as if you were in the 3rd year.