1 . You have been asked to assess the value of a finite-life asset with an expected life of 5 years and constant cash flows over that life (with no salvage value at the end). You have been given the following income statement for the asset: 1-5 Years Revenues $1,000.00 - Operating Expenses $600.00 EBIT $400.00 - Interest Expenses $100.00 Taxable Income $300.00 - Taxes $105.00 Net Income $195.00 You can assume that the firm has no capital expenditures, depreciation or working capital needs; in other words, earnings are cash flows. The effective tax rate is also the marginal tax rate. The cost of capital for the asset is 10%. a. Estimate the value of the asset. (4 points) b. How would your answer to (a) change if you were told that the cash flows were real cash flows and that the cost of capital (of 10%) was a nominal cost of capital. (The expected inflation rate is 2%) (2 points)