Optimal level of capital for the firm

Assignment Help Macroeconomics
Reference no: EM131334719

A corporation produces output with a constant market price of $70 per unit. The marginal product of capital is 1/(2K), where K is units of capital, with each unit assumed to be worth $1. The life span of the capital is 10 years, implying the straight line depreciation rate δ=.10. The financing cost of capital is ρ=.10. Also, assume the discount rate to use in any present value calculations is .10.

a. What is the optimal level of capital for the firm?

b. Suppose the corporate tax rate on accounting profits is 40%. The firm can include depreciation at the rate δ per year in its accounting costs, but not its financing costs. What is the optimal level of capital for the firm?

c. For the scenario in b., what is the effective corporate tax rate?

d. Same assumptions as b. Except, now suppose the government allows the firm to depreciate 25% of its capital costs immediately, while the remainder depreciates at the straight line rate δ, what is the optimal level of capital for the firm?

Reference no: EM131334719

Questions Cloud

Create a form to link the spreadsheet to a table in database : Create a form (frmUpdateMediaLink) to link the spreadsheet to a table in the database. Create a form (frmUpdateMedia), write a VBA code to extract the data and display it in a listbox, dropdownbox or any from of grid
Evaluate all the tech writing tips : Evaluate all the Tech Writing Tips to determine which you feel is the most valuable to technical writers in general - Explain which tip in particular seems the most obvious to a technical writer. Provide your reason(s). Then, speculate why it was i..
What is the international strategy of starusa : Why did Herman Wouters resign?- What is the international strategy of StarUSA?- How has StarUSA's development affected its HR function?
What areas of ihr will cindy need to learn : Why is Cindy Fratelli unprepared to play an IHR role?- How can she prepare herself?- What areas of IHR will Cindy need to learn?
Optimal level of capital for the firm : a. What is the optimal level of capital for the firm? b. Suppose the corporate tax rate on accounting profits is 40%. The firm can include depreciation at the rate δ per year in its accounting costs, but not its financing costs. What is the optima..
How the critical thinking process relates to your appraisal : How the critical thinking process relates to your appraisal and recommendations for more community outreach and diversity in your organization and How an examination of your own ethics relates to your decision making
What are various choices that mnes have for entry into ib : What are the various choices that MNEs have for entry into IB? How do the functions of HR vary with these various choices?
What is john expected utility : a. What is John's expected utility? b. What is the actuarially fair insurance premium for full insurance coverage? c. What would John's expected utility be were he to purchase actuarially fair insurance?
Why did obi create centers of competency : How did OBI capitalize on the strengths of its multi-domestic strategy when shifting the structure to a transnational organization?

Reviews

Write a Review

Macroeconomics Questions & Answers

  Perform your macroeconomic analysis on the material

Perform your macroeconomic analysis on the material. Remember that you need to provide an analysis of your chosen currency against the U.S. dollar over the 5-year period ending with 2010.

  Oligopolies and monopolistic competition

In the lesson presented by Sal on Oligopolies and Monopolistic Competition he creates a two dimensional grid of the market types based on number of competitors and degree of product differentiation.  Make sure you view this lesson.

  When pay the amounts rather than receive them

At an annual compound interest of 10% per year, would you rather receive $10,000 per year for 5 years or receive $5,000 per year for 10 years What is your preference if you must pay these amounts rather than receive them

  Calculate the quantity sold in the market

A perfectly compeitive market has 11 identical firms. The 11 firms have marginal cost of: MC = 2.6q + 5.4 Market demand: 59 - 4.5P

  Four frames of organizations

1) Compare and contrast the "four frames of organizations" and why they are important to a program manager's understanding of the organization. Your response must be at least 200 words in length.

  Walmart has any special foreign exchange problems

Walmart has any special foreign exchange problems resulting from its strategic stance payment in USD, and what alternative policies the company could adopt in the event of such problems.

  Relationship between the two countries interest rates

Suppose that Home maintains a stable fixed exchange rate with Foreign. What does this imply about the relationship between the two countries' interest rates?

  Compute the expected utility of each project

Compute the expected utility of each project and identify the preferred project according to this criterion.

  Suppose the elasticity of us exports is very low

Suppose the elasticity of U.S. exports with respect to the real exchange rate is very low

  Expected value of the company in one year

What is the expected value of the company in one year, with and without expansion? Would the company's stockholders be better off with or without expansion? Explain. What is the expected value of the company's debt in one year, with or without expa..

  Scenariothis course uses the ctu professional learning

scenariothis course uses the ctu professional learning model to teach with hands-on industry-related problem-solving

  Open-market purchase by the fed

Assume that the banking system is loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.2, by how much could the money supply expand if the Fed purchased $2 billion wort..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd