Calculate the After-Tax User Cost of Capital of a Machine

question 38

Multiple Choice

Calculate the after-tax user cost of capital of a machine that costs $5000 and depreciates at a 25% rate,when the interest rate is 5% and the tax rate on revenue is 25%.

• A)$200
• B)$275
• C)$2000
• D)$2750

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Definitions:

Nominal Interest Income

The amount of money earned from interest before adjusting for inflation; it does not account for the purchasing power of the interest income.

Monetary Policy

Monetary policy involves the management of a nation's money supply and interest rates by its central bank to control inflation, manage employment, and stabilize the currency.

Short Run

A period in economics where at least one input is fixed and cannot be changed, limiting adjustments in production.

Long Run

A period in which all inputs, including capital assets, can be adjusted by firms in response to market conditions.