Suppose a farmer is considering the purchase of additional farmland. It is believed that the operating revenue per acre of land per year will be $686 and operating expenses will be $447 in present dollars. The inflation rate is expected to be 7% Assume that the marginal tax rate is 16% and that this farmer requires at least an 8% pre-tax, risk free return on capital.
(i) Calculate the nominal before-tax net returns at the end of year 1.
a. $237.83 b. $239.00 c. $296.65 d. $255.73 e. None of the answers are correct
(ii) Calculate the nominal after-tax net returns at the end of year 2.
a. $266.63 b. $214.81 c. $213.76 d. $229.85 e. None of the answers are correct
(iii) Calculate the nominal after-tax net returns at the end of year 3.
a. $285.29 b. $228.72 c. $245.94 d. $229.85
