A rancher is considering the purchase of additional land to expand operations. He can operate an additional 750 acres with present labor and machinery. The land is selling for $650 per acre. This rancher believes that the operating revenue per acre of land will be $550 and operating expenses will be $400 in present dollars. He expects the inflation rate will be 3%. The rancher will sell the land in 3 years and he anticipates that land prices will increase at the rate of inflation from the base of $650 per acre. A bank will loan him $500 per acre of land and the loan will be fully amortized over 15 years at 12% (annual payments). The outstanding balance of the loan will be paid at the end of the third year. Assume that the marginal tax rate is 13% and that he requires at least a 8% pre-tax, risk-free return on capital and a 2% risk premium on projects of comparable risk.

(i) Calculate the nominal after-tax net returns at the end of year 2.

a. $126.33 b. $138.45

c. $117.05 d. None of the answers are correct

(ii) What is the present value of the nominal after tax net return after 3 years?

a. $382.61 b. $368.92

c. $351.86 d. None of the answers are correct

(iii) What is present value of the after-tax terminal value after 3 years?

a. $532.07 b. $572.29

c. $546.91 d. None of the answers are correct

(iv) What is the net present value?

a. $248.77 b. $251.69

c. $264.08 d. None of the answers are correct