i,j,t = auxiliary indexes

= initial level of capital investments
= capital investments in year t
k = growth rate of the capital investments

T = length of the simulation period
n = length of the observation period (number of years under observation for the profitability estimation)

A = amplitude of the cycle
C = length of the cycle
= technical phase adjustment for the cycle

= the standard deviation of the random fluctuation in the capital expenditures
z = random variable following the (0,1)-normal distribution

S = capital investment shock coefficient
= the year of the capital investment shock ( = for no shock in the simulation)
= Kronecker's delta, = 1 when t = , and 0 otherwise

= absolute contribution (cash-inflow) in year t from capital investment i years back
= relative contribution from capital investment i years back
N = life-span of a capital investment project (the same for all capital investments)

= cash inflow in year t

r = true internal rate of the simulated firm
= estimate of the internal rate of return

q = shape parameter for negative binomial distribution
m = location parameter for negative binomial distribution
= negative binomial distribution
s = scaling factor

= accounting profit in year t
= depreciation in year t
= book value of the firm at the end of year t

= market value of the firm at the end of year t

= cash recovery rate in year t
= gross assets at the end of year t
= accumulated depreciation
= estimate of the gross assets at the end of year t
= estimate of the accumulated depreciation
E(N) = Estimate of the life-span of the capital investments

= annuity factor for N years at a rate of k
F = capital investment ratio
= estimate of the (constant) capital investment ratio
= OLS estimate of the firm's growth from f(t)

= accountant's rate of return in year t
= average of the accountant's rate of return over a period