A farmer expects irrigation system will increase real operating receipts by $32,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 5% and the marginal tax rate is 20%.
(i) What is the nominal net return at the end of year 3?
a. $29,172 b. $22,800
c. $27,783 d. $24,000
(ii) Calculate the nominal after-tax net return at the end of year 4.
a. $28,800 b. $27,360
c. $34,560 d. $23,338