Assume Luke is considering investing in new equipment and computers for his construction company. The real interest rate is 5%, construction equipment is valued at $600,000, and computers are valued at $20,000. Neither type of capital is expected to change its price during the next year.

a) Calculate the user cost of capital for construction equipment, assuming it depreciates at a 10% annual rate.

b) Suppose the annual depreciation rate for computers is 35%. Calculate the user cost of capital for computers.