To answer the first question, we need to calculate the economic income and economic profit for the first year of the project. Economic income is the after-tax cash flow plus the change in market value for an investment.

Cash flow = operating income (1 − T) + depreciation = $80(1 − 0.30) + $50 = $106 million.

Next determine the current market value of the project as: (106 / 1.08) + (106 / 1.08²) + (106 / 1.08³) = $273.17 million. The value after Year 1 = (106 / 1.08) + (106 / 1.08²) = $189.03 million. The change in market value = (273.17 − 189.03) = $84.4 million. The economic income is $106 − $84.4 = $21.86 million.

Economic profit = NOPAT − $WACC = EBIT(1 − T) − $WACC
Economic profit (Year 1) = $80(1 − 0.30) − 0.08($150) = $44 million

Huang’s supervisor should disagree with the first statement as the economic profit of $44 million exceeds the economic income of $22 million.

Huang’s supervisor should agree with the second statement. The discount rate applied to the economic profit to determine the project’s NPV is the WACC. The economic rate of return using the economic income approach will be equal to the WACC, so the rates are identical. We can take the first year’s economic income divided by the market value of the project and see that the economic rate of return is the same as the WACC. ($22 / $273) = 0.08, or 8%.