A large corporation subjected to 35% marginal tax is investing in a new income producing asset that is depreciated on a MACRS 3 year schedule. The full price of the asset is 250,000 but the asset will be financed at an interest rate of 8.00% over 5 years after a down payment of 10%. The expected revenue and costs in constant dollars (year 0) by year are given below. Given general market competition the expected maximum price increase that the company expects to be able to impose if 1.5% per year. Based on historical costs, the expected inflation of costs is expected to be 3.2%. Note that is inflation does not apply to finance costs of principal and interest payments. When retired, the asset will have no value.

Year	1	2	3	4	5	6
Direct Revenue	120,000	280,000	360,000	320,000	210,000	90,000
Direct and Allocated Cost	85,000	120,000	160,000	150,000	110,000	65,000

a. What is the net cash flow in year 3 in actual dollars?

b. What is the net cash flow in year 6 in actual dollars?

c. What is the rate of return on real dollars (market rate of return) of the net cash flow expressed with 3 digits after decimal point in percentage format?

d. Based on market cost increases, what is the real rate of return on constant dollars (inflation adjusted) of the net cash flow expressed with 3 digits after decimal point in percentage format ?