Suppose a Firm Anticipates That a Particular R&D Expenditure of $100

question 294

Multiple Choice

Suppose a firm anticipates that a particular R&D expenditure of $100 million will result in a new product and thus create a one-time added profit of $108 million a year later. The firm will

• A)undertake the R&D expenditure if its interest-rate cost of borrowing is 12 percent.
• B)undertake the R&D expenditure if its interest-rate cost of borrowing is 10 percent.
• C)not undertake the R&D expenditure if its interest-rate cost of borrowing is 9 percent.
• D)not undertake the R&D expenditure if its interest-rate cost of borrowing is 7 percent.

---

Definitions:

Tax Rate Structure

The framework defining how different levels of income are taxed at various rates, often progressive, where higher income incurs higher tax rates.

Progressive

A tax system in which the tax rate increases as the taxable amount increases, placing a larger burden on those who have higher incomes.

Proportional

A tax system where the tax rate remains constant as the taxable amount increases.

Regressive

A tax system where the tax rate decreases as the taxable amount increases, leading to lower-income individuals bearing a proportionally higher tax burden.