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