#4. (18 marks) Brook Farms wants to purchase brand new farm machinery for $90,000. Its physical life is 16 years. The companys interest rate is 5% and its marginal corporate tax rate is 30%. Its investment tax credit is 10% but its interest is not tax deductible. The return on this purchase is 10%. Round all your fraction rate calculations to 3 decimal points and your percentage rates to 2 decimal points. (a) If the government requires them to use declining balance depreciation method as follows: the write off has to take place at the rate of 40%, whenever a balance of less than $12,000 is left it can be written off fully in the subsequent year. What is the value of now? What is the user cost of capital? Should Brook Farms make this purchase? (b) If the government requires them to use declining expenditure balance fraction method of depreciation: 10 of the cost can be deducted the first year, and for 30 every subsequent year the numerator drops by 2 (e.g. the second year fraction is 8 etc.) until the equipment is fully depreciated. What is the value of now? 30 What is the user cost of capital? Should Brook Farms make this purchase? (c) If the government allows the company to do expensing, what is the value of ? What is the user cost of capital? Should Brook Farms make this purchase?

#4. (18 marks) Brook Farms wants to purchase brand new farm machinery for $90,000. Its physical life is 16 years. The company's interest rate is 5% and its marginal corporate tax rate is 30%. Its investment tax credit is 10% but its interest is not tax deductible. The return on this purchase is 10 %. Round all your fraction rate calculations to 3 decimal points and your percentage rates to 2 decimal points (7 marks) (a)If the government requires them to use declining balance depreciation method as follows: the write off has to take place at the rate of 40%, whenever a balance of less than S12,000 is left it can be written off fully in the subsequent year. What is this purchase? method of depreciation: of the cost can be deducted the first year, and for the value of now? What is the user cost of capital? Should Brook Farms make (7 marks) (b)Ifthe government requires them to use declining expenditure balance fraction 10 30 every subsequent year the numerator drops by 2 (e.g. the second year fraction is etc.) until the equipment is fully depreciated. What is the value of now? 30 What is the user cost of capital? Should Brook Farms make this purchase? (4 marks) (c)If the government allows the company to do expensing, what is the value of y? What is the user cost of capital? Should Brook Farms make this purchase? #4. (18 marks) Brook Farms wants to purchase brand new farm machinery for $90,000. Its physical life is 16 years. The company's interest rate is 5% and its marginal corporate tax rate is 30%. Its investment tax credit is 10% but its interest is not tax deductible. The return on this purchase is 10 %. Round all your fraction rate calculations to 3 decimal points and your percentage rates to 2 decimal points (7 marks) (a)If the government requires them to use declining balance depreciation method as follows: the write off has to take place at the rate of 40%, whenever a balance of less than S12,000 is left it can be written off fully in the subsequent year. What is this purchase? method of depreciation: of the cost can be deducted the first year, and for the value of now? What is the user cost of capital? Should Brook Farms make (7 marks) (b)Ifthe government requires them to use declining expenditure balance fraction 10 30 every subsequent year the numerator drops by 2 (e.g. the second year fraction is etc.) until the equipment is fully depreciated. What is the value of now? 30 What is the user cost of capital? Should Brook Farms make this purchase? (4 marks) (c)If the government allows the company to do expensing, what is the value of y? What is the user cost of capital? Should Brook Farms make this purchase