Scenario
J&J Enterprises is formed on December 31, 2000. At that point it has one asset costing $2,487. The asset has a three-year life with no salvage value and is expected to generate cash flows of $1,000 on December 31, in the years 2001, 2002, and 2003. Actual results are the same as planned. Depreciation is the firm's only expense. All income is to be distributed as dividends on the three dates mentioned. Other information includes:
* The price index stands at 100 on December 31, 2000. It goes up to 104 and 108 on January 1, 2002 and 2003 respectively.
* Net realizable value…
