A rancher is considering the purchase of additional land to expand operations. He can operate an...

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A rancher is considering the purchase of additional land toexpand operations. He can operate an additional 1000 acres withpresent labor and machinery. The land is selling for $750 per acre.This rancher believes that the operating revenue per acre of landwill be $550 and operating expenses will be $450 in presentdollars. He expects the inflation rate will be 3%. The rancher willsell the land in 3 years and he anticipates that land prices willincrease at the rate of inflation from the base of $750 per acre. Abank will loan him $600 per acre of land and the loan will be fullyamortized over 15 years at 12% (annual payments). The outstandingbalance of the loan will be paid at the end of the third year.Assume that the marginal tax rate is 15% and that he requires atleast an 8% pre-tax, risk-free return on capital and a 2% riskpremium on projects of comparable risk.
(i) Calculate the nominal after-tax net returns at the end ofyear 2.
Â Â Â Â Â Â Â Â Â Â Â Â a.$78.30Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â b.$84.52
Â Â Â Â Â Â Â Â Â Â Â c.$90.18Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â d.None of the answers are correct
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(ii) What is the present value of the nominal after tax netreturn after 3 years?
Â Â Â Â Â Â Â Â Â Â Â Â a.$258.10Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â b.$213.27
Â Â Â Â Â Â Â Â Â Â Â Â c.$230.01Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â d.None of the answers are correct
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(iii) What is present value of the after-tax terminal valueafter 3 years?
Â Â Â Â Â Â Â Â Â Â Â Â a.$612.38Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â b.$628.66
Â Â Â Â Â Â Â Â Â Â Â Â c.$633.46Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â d.None of the answers are correct
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(iv) What is the net present value?
Â Â Â Â Â Â Â Â Â Â Â Â a.$134.89Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â b.$97.22
Â Â Â Â Â Â Â Â Â Â Â Â c.$113.47Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â d.None of the answers are correct
THE ANSWERS WILL NOT BE \"NONE OF THE ANSWERS ARE CORRECT\"

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I have provided the answers below Detailed workings areavailable after the questionsi Calculate the nominal aftertax net returns at the end ofyear 2The correct answer is See Answer

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