1. Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $120,000. The facility is to be depreciated on a seven-year basis. It is expected to have no value after seven years. Operating revenues from the facility are expected to be $50,000 in the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs in the first year are $20,000, and they are expected to increase at 7 percent per year. All cash flows are given in nominal terms. The real discount rate is 14 percent. The corporate tax rate is 34 percent. Should the company accept the suggestion? (Hint: use the nominal discount rate,)
   1. + Real Discount Rate = (1 + Nominal Discount Rate) / (1 + Inflation Rate)

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