A large corporation subjected to 35% 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 150,000. The expected revenue and costs in constant dollars (year 0) by year are given below. Based on historical costs, the expected inflation of costs is expected to be 3.0%.

Note that is inflation does not apply to finance costs of principal and interest payments. When retired, the asset will have no value. The firm's MARR is 15% in real dollars.

a. Compute the actual IRR b. compute the real IRR (without inflation) c. compute the PV in actual dollars discounted at the 15% actual rate d. compute the PV in real dollars discounted at the real interest rate.

\begin{tabular}{|l|c|c|c|c|c|c|c|} \hline Year & 0 & 1 & 2 & 3 & 4 & 5 & 6 \\ \hline Direct Revenue & & 120,000 & 150,000 & 250,000 & 320,000 & 320,000 & 320,000 \\ \hline Direct and Allocated Cost & & 85,000 & 100,000 & 120,000 & 150,000 & 170,000 & 200,000 \\ \hline \end{tabular}