Sales of Product X are restricted to values ranging from 250,000 to 500,000 units to illustrate clearly the behavior of the two investment structures as the discounted values of their economic incomes intersect.
Therefore, when a firm's economic income is positive, it creates economic value for the firm's stockholders.
Like accounting income, economic income is a periodic measure of performance.
However, unlike overhead-related cost, the cost of capital is subtracted from operating income after taxes to determine a product's economic income.
Unlike accounting profitability, economic income over a product's life must be discounted to when production of the product will begin.
As noted earlier, Hartman (2000) and Shrieves and Wachowicz (2001) provide mathematical proofs that discounting an investment economic income is equivalent to its NPV.
Therefore, for every additional unit of Product X sold each year over its three-year life, its discounted economic income will increase by $130.
For example, Product X's economic income is affected by the product-specific nature of the assets purchased for the assembly activity.
Using the data in Table I in Equation 4, the discounted economic income for producing and selling 425,000 units is $4,148,580.
Using the CVP model, the change in Product X's discounted economic income for other process improvements can also be assessed.
the AMT was designed to ensure that taxpayers with substantial economic incomes paid some tax.
When the AMT was enacted as part of the Tax Reform Act of 1986, Congress had "one overriding objective: to ensure that no taxpayer with substantial economic income can avoid significant tax liability by using exclusions, deductions, and credits.