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A corporation produces output with a constant market price of $70 per unit. The marginal product of capital is 1f(2|(}, where K is units of
A corporation produces output with a constant market price of $70 per unit. The marginal product of capital is 1f(2|(}, 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 55.10. The nancing cost of capital is p=.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 rm? b. Suppose the corporate tax rate on accounting prots is 40%. The rm can include depreciation at the rate 5 per year in its accounting costs, but not its nancing costs. What is the optimal level of capital for the rm? c. For the scenario in b., what is the effective corporate tax rate?l d. Same assumptions as b. Except, now suppose the government allows the rm to depreciate 25% of its capital costs immediately. while the remainder depreciates at the straight line rate 5. what is the optimal level of capital for the rm
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