Question: Given the following information: Nominal Initial Cost = $68,000; Nominal Before-tax Net Return = 11,000 Marginal Tax Rate = 20%; Required rate of return =

Given the following information:

Nominal Initial Cost = $68,000; Nominal Before-tax Net Return = 11,000

Marginal Tax Rate = 20%; Required rate of return = 12%

Real Terminal Value = $60,000; Investment Life = 3 years

Inflation Rate = 4%; Risk Premium = 2%

Suppose that IRS will allow the investor to depreciate the investment using straight-line over 12 years.

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

a. $60,120 b. $64,600

c. $64,193 d. $64,005

(v) What is the present value of the nominal after-tax terminal value?

a. $41,446 b. $44,534

c. $46,685 d. $44,124

(vi) What is the NPV of this investment?

a. $4,571.32 b. $4,754.17

c. $4,388.17 d. $3,657.06

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