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Find the user cost of capital

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Question: The user cost of capital: Consider the basic formula for the user cost of capital in the presence of a corporate income tax. Suppose the baseline case features an interest rate of 2 percent, a rate of depreciation of 6 percent, a price of capital that rises at 1 percent per year, and a 0 percent corporate tax rate. Starting from this baseline case, what is the user cost of capital after the following changes?

(a) No changes - the baseline case.

(b) The corporate tax rate rises to 35 percent.

(c) The interest rate doubles to 4 percent.

(d) Both (b) and (c).

Reference no: EM131634681

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