Money and Markets: Essays in Honor of Leland B. Yeager

Reflections on reswitching and roundaboutness 193presentvalue$0.40$0.30$0.20$0.10$0interestrate2 4 6 8 10 12 14–$0.10–$0.20Figure 13.2 Present value (0%–14%).presentvalue$100$80$70$60$50$40$30$20$10interest$0rate0 200 400 600 800 1000Figure 13.3 Present value (0%–1000%).period might be clean-up costs or costs of complying with a service contract. Thebreak-even rates of return are still 2 percent and 8 percent. But with incomes andoutlays reversed, the middling interest rate of 5 percent puts the project in the blackby $0.08, and for all rates less than 2 percent or greater than 8 percent, the projectis in the red. The graph of the outlays and revenues of this mirror-image project,along with the graphs of the dependence of present value on the rate of interest, arethe same as Figures 13.1–13.3 – but with the positive and negative segments of thevertical axis reversed.