7)11.5%. The combined tax rate on corporate income in Ontario is t = 26.5%.

a)Suppose that a firm has purchased a $10,000,000 capital asset financed with the sale of10-year corporate bonds. The interest on the bonds is 6%. The capital asset is depreciated using straight line depreciation over a period of 10 years. The total amount the firm can deduct as an allowable business expense at the end of the first year is $?

b)The present value of all future depreciation allowances from the purchase of the $10,000,000 capital asset is $?

c)The present value of all future interest deductions from the purchase of the $10,000,000 capital asset is $?.

d)The real opportunity cost to the firm from using bonds to purchase the $10,000,000 capital asset is $?.

e)If the firm bought the $10,000,000 capital asset using retained earnings, the opportunity cost to the firm of the capital asset would be $?.

f)If the corporate income tax were to tax economic profit instead of corporate income, the tax would have an excess burden equal to $?.

g)One of the reasons for the federal income tax is that it is a withholding tax. Explain what the withholding function of the corporate income tax is.