13A)

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