hi, Could someone help? i have tried calculating this problem every way and i just cannot figure out why the Economic profit for year 2 in this questions is 3.9 rather than 3.5.
I believe the “economic value” of the asset at beginning of year 2 is 8M (the price you could sell it for after one year). at a WACC of 11% this means ~900k of cost of the capital tied up. EBIT * (1-t) - cost of capital 8 * (1-.4) - .9 = 3.9 I got this wrong too, finally guessed (incorrectly) when I took the exam.