Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate...
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Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate of 25%, assigns a 2% risk premium to investments, and expects inflation to be 3% per year over the next 10 years. This farmer calculates the NPV of his new investment to be -$50,000 based on an investment life of 10 years. (i) Calculate the real discount rate. a. 9.47% c. 7.74% Enter Response Here: b. 12.75% Enter Response Here: d. None of the answers are correct (ii) Calculate the real annuity equivalent. a. $9,492 b. $5,298 c. $7,953 d. None of the answers are correct Suppose a farmer requires a pre-tax rate of return of 15%, has a marginal tax rate of 25%, assigns a 2% risk premium to investments, and expects inflation to be 3% per year over the next 10 years. This farmer calculates the NPV of his new investment to be -$50,000 based on an investment life of 10 years. (i) Calculate the real discount rate. a. 9.47% c. 7.74% Enter Response Here: b. 12.75% Enter Response Here: d. None of the answers are correct (ii) Calculate the real annuity equivalent. a. $9,492 b. $5,298 c. $7,953 d. None of the answers are correct
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Q1 Answer c 774 Real discount rate Pretax rate of return M... View the full answer
Related Book For
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins
Posted Date:
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