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Corporate Taxation (15 points) 12. Roy's Firm is considering buying a $100 machine. The machine would depreciate $10 each year. The interest rate Roy's Firm pays on its corporate bonds is 10 percent. (a) Without any special tax treatment, what is the economic cost this year of buying a machine this year? (Suppose Roy's Firm nances the investment by selling corporate bonds. Roy's Firm buys the machine at the beginning of the year.) (b) Suppose the government taxes corporate income at a rate of 20 percent (but does not allow for any deductions). How, it at all, does this tax affect the economic cost of an additional machine to Roy's Firm (relative to the no-tax situation of part a)? Explain briey (two sentences). (c) Now suppose the government taxes corporate income at 20 percent AND al- lows Roy's Firm to deduct the cost of capital depreciation and interest pay- ments from its taxable income. Because of the deduction, what are the tax savings this year associated with the purchase of one machine this year