For David,the Marginal Utility from an Additional Car Is 2,000

question 295

Multiple Choice

For David,the marginal utility from an additional car is 2,000 units and the marginal utility from an additional vacation is 1,000 units.David is allocating all his budget.Hence to maximize his utility,David will

• A) shift his consumption from the vacation to the car.
• B) shift his consumption from the car to the vacation.
• C) save his budget by not spending it until he can afford both the car and the vacation.
• D) buy both the car and the vacation now.
• E) possibly do something, but there is not enough information available to determine what he would do.

---

Definitions:

After-Tax Cost of Debt

After-Tax Cost of Debt represents the net cost of debt to a company after accounting for the tax deductions on interest expenses.

Yield-to-Maturity

The total return anticipated on a bond if the bond is held until it matures, considering all interest payments made over the life of the bond and the difference between the purchase price and the maturity value.

Marginal Tax Rate

The rate at which your last dollar of income is taxed, effectively the rate applied to each additional dollar of taxable income.

After-Tax Cost of Debt

The net cost of debt after taking into account the tax deductions available on interest payments.