Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $272,000. The...

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Sanders Enterprises, Inc., has been considering the purchase ofa new manufacturing facility for $272,000. The facility is to befully depreciated on a straight-line basis over seven years. It isexpected to have no resale value after the seven years. Operatingrevenues from the facility are expected to be $107,000, in nominalterms, at the end of the first year. The revenues are expected toincrease at the inflation rate of 5 percent. Production costs atthe end of the first year will be $32,000, in nominal terms, andthey are expected to increase at 6 percent per year. The realdiscount rate is 8 percent. The corporate tax rate is 34percent.

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Sanders Enterprises, Inc., has been considering the purchase ofa new manufacturing facility for $272,000. The facility is to befully depreciated on a straight-line basis over seven years. It isexpected to have no resale value after the seven years. Operatingrevenues from the facility are expected to be $107,000, in nominalterms, at the end of the first year. The revenues are expected toincrease at the inflation rate of 5 percent. Production costs atthe end of the first year will be $32,000, in nominal terms, andthey are expected to increase at 6 percent per year. The realdiscount rate is 8 percent. The corporate tax rate is 34percent.