Consider the following financial data for a project:
$90,000 = initial investment
$10,000 = salvage value
6 years = project life
$27,000 = annual revenue
$8,000 = annual expenses
Answer the following questions:
a) What is the i* for this project?
b) If the annual expense increases at a 7% rate over the previous year's expenses, but the annual income is unchanged, what is the new i*?
c) In part (b), at what annual rate will the annual income have to increase to maintain the same i* obtained in part (a)?