Assume That the User Cost of Capital (C)is Simply

question 12

Essay

Assume that the user cost of capital (C)is simply
where r is the after tax rate of return, 6 is the depreciation rate, and q is the corporate tax rate. Now assume further that the after-tax rate of return is 12 percent and the economic depreciation rate is 4 percent. The firm faces corporate taxes of 35 percent. Suppose that we now know that the present value of depreciation allowances is 0.20. In addition, there is an investment tax credit of 0.10. What effect does this new information have on the user cost of capital?

---

Definitions:

Latissimus Dorsi

A large, flat muscle on the back that helps in the movement of the shoulders and arms.

Trapezius Group

A collection of muscles extending from the neck to the mid-back, responsible for moving the shoulder blades and supporting the arm.

Rhomboideus Major

A muscle in the back that connects the spine to the scapula, involved in retracting the shoulder blade.

Infraspinatus

A muscle located on the back of the shoulder blade that is responsible for the external rotation of the shoulder joint.