Miami Machine Shops, Ltd. is considering purchasing a vertical drill machine. The machine will cost $69,000 and will have an eight-year service life. The selling price of the machine at the end of eight years is expected to be $6,000 in today's dollars. The machine will generate annual revenues of $23,000 (today's dollars), but the company expects to have an annual expense (excluding depreciation) of $9,300 (today's dollars). The asset is classified as a seven-year MACRS property. The project requires a working-capital investment of $12,000 at year 0. The marginal income tax rate for the firm is averaging 40%. The firm's market interest rate is 15%.

(a) Determine the internal rate of return of this investment. (Round to two decimal places)

(b) Assume that the firm expects a general inflation rate of 6%, but that it also expects a 8% annual increase in revenue and working capital and a 7% annual increase in expense caused by inflation. Compute the real (inflation-free) internal rate of return. (Round to two decimal places)