Suppose that the interest rate is 5%, the depreciation rate is 8%, the real price of capital is $10, and the tax rate is 10%.
a. Calculate the tax-adjusted user cost of capital.
b. Calculate the tax-adjusted user cost of capital if the depreciation rate increases to 10%.
c. Return to the original depreciation rate and calculate the tax-adjusted user cost of capital if the tax rate falls to 6%.
This question was answered on: Jul 11, 2017
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