1. Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow? Show work. Equipment cost (depreciable basis) $80,000 Straight-line depreciation rate 33.333% Sales revenues, each year $70,000 Operating costs (excl. deprec.) $40,000 Tax rate 40%

a. $29,916.66 b. $28.666.56 c. $27,575.55 d. $26,333.35.

2. You bought one of Great White Shark Repellant Co.’s 10 percent coupon bonds one year ago for $760. These bonds make annual payments and mature 6 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 12 percent. If the inflation rate was 3.7 percent over the past year, what was your total real return on investment?

38.87%

29.14%

16.45%

29.24%

30.60%