Answer:
b. $216.08
Explanation:
Fn = Fo * (1+g)^n
Fn = $250*(1.05)^7
Fn = $250*1.40710
Fn = $351.775
Nominal net returns = $351.775 * (1.04)^7
Nominal net returns = $351.775 * 1.315932
Nominal net returns = $462.912
After tax return = Nominal net returns * (1 - 20%)
After tax return = $462.912 * (1 - 0.2)
After tax return = $370.33
After-tax, risk adjusted discount rate = 0.1*(1 - 0.2)
After-tax, risk adjusted discount rate = 0.1*0.8
After-tax, risk adjusted discount rate = 0.08
After-tax, risk adjusted discount rate = 8%
PV after-tax net return in 7th year = After tax return * (1+8%)^-7
PV after-tax net return in 7th year = $370.33 * (1+0.08)^-7
PV after-tax net return in 7th year = $370.33 * 0.583490
PV after-tax net return in 7th year = $216.08
