Unformatted text preview: ond period, and so on. value of the capital at time (the beginning of the
() Period 4 period). As such: Value of capital at time (in $) Purchase price of capital at time 0(in $)
“Salvage” value of capital at time (in $) The “value” of capital isn’t the same thing as the “price” of using capital as an input. The “value” is what the capital is
worth (the price it would fetch if it were sold on the market) whereas the “price” of capital is the price of using capital as
an input. The “price of using capital” is analogous to a monthly lease payment on a car whereas the “value of capital” is
what the car is worth (for example, the “blue book value”).
) and ) is denoted by ( ) and as we will see, it can
The cost of depreciation in the
period (i.e. between time (
be calculated by a variety of depreciation methods you’ve see in accounting (for example, straight line depreciation and
declining balance methods). By definition, the value of capital declines in each period by the amount of depreciation in
() ( ) ()...
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