A
B
Calculation of the Marginal Efficiency of Capital (MEC) can be illustrated by the
schedule presented below:
Acquisition Year 1 (R₁)
Project Investment
Cost
Year 2 (R₂)
10,000
10,000
10,000
10,000
BU
If PV < C, then the project is not feasible
If PV = C, then the project is indetermined
C
D
Assuming a 6% market rate of interest
By applying the formula:
R₂
PV =
R₁
+
1+r (1+r)²
and
and should be undertaken
> C... Eq II
10,000
10,000
3,762
5,762
0
1,100
7,762
5,762
11