Sonja Jensen is considering the purchase of a fast-food franchise. Sonja will be operating on a lot that is to be converted into a parking lot in six years, but that may be rented in the interim for $800 per month. The franchise and necessary equipment will have a total initial cost of $55,000 and a salvage value of $ 10,000 (in today's dollars) after six years. Sonja is told that the future annual general inflation rate will be 5%. The projected operating revenues and expenses (in actual dollars) other than rent and deprecation for the business are

Assume that the initial investment will be depreciated under the five-year MACRS and that Sonja's tax rate will be 30%. Sonja can invest her money at a rate of at least 10% in other investment activities during this inflation-ridden period.
(a) Determine the cash flows associated with the investment over its life.
(b) Compute the projected after-tax rate of return (real or inflation-free) for this investment opportunity and justify whether or not it is worth undertaking.

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End of Year Revenue $35,000 38,000 55,000 60,000 70,000 60,000 Expenses $16,000 21.000 23,000 32.000 33.000 33.000