Reading 31: Capital Budgeting question 33

  1. Economic income during year one is *closest* to: A. 23,186 B. C. D. E. 51,899 Economic income, ei, is equal to: = cashFlowOperation - economicDepreciation However, there are 2 ways to get CFO (cashFlowOperation): It’s actually provided to you, and also, there is the equation: (S-C-D)(1-T)+ D Why the hell do they calculate it the second way, and not the first, and when are there problems in which you calculate it from the first method? I personally think that this question is a trick question and it’s very unfair. On one hand, they *PROVIDE* you CFO, but on the other hand, YOU’RE NOT ABLE TO USE IT!

So you mean to say that the answer should have been 29902.55 (if we use their given CFO)?

I don’t remember off hand. All I know is that this question was confusing and not fair. It’s totally inappropriate when you’re not allowed to use the figures that they give you and that there is more than one way of solving this problem. Is it fair when I ask you the following question: How many Newtons does the following person weigh, given that he’s on planet earth (g=9.8m/s^2) , his mass is 80 kg and his weight due to gravity is 750 N? Sure, the answer is simply given as 750N. But, I can also calculate weight as mass*g = 784N. Unfair, confusing, and stupid.