John is a farmer in the Midwest who currently uses fossil fuels to dry his corn crop.$$ He currently has a high$-$speed, high$-$temperature drying system, and to reduce his fuel costs, he wishes to switch to a combination of high$-$temperature and low$-$temperature drying system that allows him to use natural solar energy for part of the drying process.$$ John will run $15,000$ bushels$/$day for $40$ days through the new drying system and estimates the solar drying will save him $$0\mathrm{.}015/$bushel$,$ therefore increasing his net returns.$$ The initial cost of the system is $$80,000,$ has a real terminal value of $$30,000$ and has an investment life of $8$ years.$$ To pay for the system, he will take out a loan to cover $80\%$ of the cost of the system and pay for the remaining $20\%$ out$-$of$-$pocket.$$ The loan is fully amortized over $15$ years with a $6\%$ interest rate.$$ John has a required rate of return of $10\%,$ a marginal tax rate of $20\%$ and the system will be depreciated using a straight$-$line method over $12$ years.$$ Assume an inflation rate of $3\%$ and a risk premium of $1\%.$

What is the nominal pre$-$tax net return in year $4?$

a$.$$$9,000$

$$b$.$$$10,129\mathrm{.}58$

c$.$$$9,741\mathrm{.}89$

d$.$$$9,550\mathrm{.}87$

$$

$$What is the yearly loan payment?

$$a$.$$$6,589\mathrm{.}62$

b$.$$$5,333\mathrm{.}33$

c$.$$$6,664\mathrm{.}80$

d$.$$$4,285\mathrm{.}71$

$$

$$ What are the tax savings from interest in year $1?$

$$a$.$$$768$

b$.$$$1,382\mathrm{.}44$

c$.$$$802$

d$.$$$1,458$

$$

$$ What is the principal payment in year $1?$

a$.$$$1,804\mathrm{.}80$

$$b$.$$$2,749\mathrm{.}62$

c$.$$$6,684\mathrm{.}8$

d$.$$$2,343\mathrm{.}7$

$$

$$ What is the Net Cash Flow after$-$debt in year $1?$

a$.($$$8,000)$

$$b$.$$$2,927\mathrm{.}72$

c$.$$$3,003\mathrm{.}25$

d$.$ $$2,819\mathrm{.}20$