Firm pays taxes on revenue and is allowed some deductions

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Reference no: EM131101351

Assume that a firm pays taxes on revenue and is allowed some deductions.

1. Derive and explain the user cost of capital if the firm's nominal interest payments are tax deductible.

2. Derive and explain the user cost of capital if the firm's real interest payments are tax deductible.

3. Derive and explain the user cost of capital if the depreciation of capital is tax deductible.

4. Derive and explain the user cost of capital if the firm's real interest payments and the depreciation of capital are tax deductible.

5. What is the impact of the tax on the firm's desired level of capital in the last case?

Reference no: EM131101351

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