Capitalized Equivalent Amount, CE(i)
Technically, the capitalized equivalent amount, CE(i), is a dollar amount now that, at a given interest rate, will be equivalent to the net difference of the income and payments if the cash-flow pattern is repeated indefinitely. Stated more informally, CE(i) is the amount that must be invested at interest rate i to produce an equivalent cash-flow stream on interest alone. CE(i) gives an indication of the equivalent assets that would be frozen in the venture.
CE(i) is defined as follows:
Because the AE(9%) for Mr. Kinkaid's project is $905, his CE(9%) is as follows:
His project is expected to produce the same ...
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