Appendix I

Starting with (8) we have

(I1)

Partial integration of the left-hand side yields

(I2)

because the derivative of v(t) is v(t) =
g(t)-d(t) as is seen from (2). (The economic interpretation of v.(t) is naturally that the change in capital stock (= book value) is cash outflows less depreciation.)

By substituting (5) into the right-hand side of (I1), we have

(I3)

Equating (I2) and (I3) gives (9).


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Department of Accounting and Finance, University of Vaasa,
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