Question: Given the following information: Nominal Initial Cost = $30,000; Nominal Before-tax Net Return = $8,000 Marginal Tax Rate = 10%; Required rate of return =

Given the following information:

Nominal Initial Cost = $30,000; Nominal Before-tax Net Return = $8,000

Marginal Tax Rate = 10%; Required rate of return = 10%

Real Terminal Value = $0; Investment Life = 5 years

Suppose that IRS will allow the investor to depreciate the investment using straight-line over 15 years and the inflation rate is 4%.

(i) What is the nominal terminal value?

a. $0 b. $30,000

c. $31,000 d. $27,000

Enter response here:

(ii) What is the annual depreciation expense?

a. $2,000 b. $2,080

c. $6,000 d. $6,240

Enter response here:

(iii) What is the nominal after-tax terminal value?

a. $2,000 b. $2,900

c. $2,100 d. $2,700

Enter response here:

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A rancher wants to borrow $14,300 for a trailer. The loan would be fully amortized over 17 years at 14% interest.

(i) What is the annual loan payment?

a.	$2,080.63		b.	$2,891.01
c.	$3,082.65		d.	$2,243.89

Enter your response here

(ii) What is the remaining principal balance on the following loan at the end of 8 years?

a.	$14,300.00		b.	$13,410.99
c.	$19,645.30		d.	$11,099.12

Enter your response here

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