An urban cooperative in Austin that supplies leafy greens and herbs to local restaurants and grocery stores is looking to expand their operation. The co-op would like to build an aquaponic system to increase their production of greens and also start producing tilapia. The new system would cost $36,000 to purchase and construct. The co-op projects that it will yield $270 of tilapia and $700 of leafy greens every week. Operating expenses are expected to increase by $28,000 annually due to fish nutrients, utilities, maintenance, and additional labor. Suppose that the workers wanted to evaluate this investment over a five-year period of time before committing. They expect that the components could be sold for $7,400 after five years of use. Taxes are expected to stay at 20% for the next six years. The IRS will allow the co-op to depreciate the system using straight line over 15 years. Assume that the terminal value of this investment is $7,400 at the end of five years. The co-op requires an 11% return to capital (pretax). Required:
a. What is the nominal pre-tax terminal value?
b. What is the after-tax, risk adjusted discount rate?