A farmer expects irrigation system will increase real operating receipts by $20,000 per year but will also increase real operating expenses by $8,000. Suppose that the inflation rate is 4% and the marginal tax rate is 20%.
(i) What is the nominal net return at the end of year 2?
a. $12,000 b. $14,400
c. $12,972 d. $11,520
ENTER RESPONSE HERE:
(ii) Calculate the nominal after-tax net return at the end of year 2.
a. $10,383 b. $13,824
c. $14,400 d. $17,280