1.The personal income tax rate equal 40% and the corporate income tax rate equals 25%. Suppose the tax law allows expensing () for a purchase of capital. The aftertax rate of return (r) equals 25% and the economic rate of depreciation () equals 15%. The investment tax credit rate (k) equals 25%.

(5%) Please derive the tax-adjusted user cost of capital when the corporate income tax and the personal income tax was integrated. The integration of the corporate income tax and the personal income tax in Taiwan was abolished in 2018. What is the percentage change in the user cost of capital, c/c , the abolishment would induce?

A recent study estimated the elasticity of investment in wind energy with respect to the user cost of capital to be about -2. What percentage of change would the abolishment of the tax integration in 2018 affect the investment in wind energy?