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 10 percent and the economic depreciation rate is 2 percent. The firm faces corporate taxes of 35 percent. What is the user cost of capital in this case?
Definitions:
Scarcity
The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.
Choices
The selection between alternative courses of action in decision-making scenarios.
Rationality
The quality of being based on or in accordance with reason or logic, often associated with decision-making processes that are efficient or optimal.
Scarce Resources
Limited availability of inputs required to produce goods and services, such as labor, land, and capital, necessitating choices and priorities in their utilization.
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