Could the risk-adjusted before-tax rate of return

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Reference no: EM131457182

Question: Capital investment in many countries is tax favored. For example, in 1989, Singapore allowed a 100% tax depreciation write-off in the year of purchase for certain automated production equipment. Similar tax treatment was allowed on a variety of capital expenditures in the United Kingdom during the early 1980s. How do investment tax credits and liberal depreciation allowances affect the required before-tax rates of return on investment? Could the risk-adjusted before-tax rates of return on investment be lower than the tax-exempt riskless bond rate in equilibrium? Why or why not? Could the risk-adjusted before-tax rate of return on investment be higher than the before-tax riskless bond rate? Why or why not?

Reference no: EM131457182

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