Assume that the user cost of capital (C)is simply
where r is the after tax rate of return, 6 is the depreciation rate, and q is the corporate tax rate. Now assume further that the after-tax rate of return is 12 percent and the economic depreciation rate is 4 percent. The firm faces corporate taxes of 35 percent. Suppose that we now know that the present value of depreciation allowances is 0.20. In addition, there is an investment tax credit of 0.10. What effect does this new information have on the user cost of capital?

Question

Assume that the user cost of capital (C)is simply
  where r is the after tax rate of return, 6 is the depreciation rate, and q is the corporate tax rate. Now assume further that the after-tax rate of return is 12 percent and the economic depreciation rate is 4 percent. The firm faces corporate taxes of 35 percent. Suppose that we now know that the present value of depreciation allowances is 0.20. In addition, there is an investment tax credit of 0.10. What effect does this new information have on the user cost of capital?

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The Answer of Assume that the user cost of capital (C)is simply
  where r is the after tax rate of return, 6 is the depreciation rate, and q is the corporate tax rate. Now assume further that the after-tax rate of return is 12 percent and the economic depreciation rate is 4 percent. The firm faces corporate taxes of 35 percent. Suppose that we now know that the present value of depreciation allowances is 0.20. In addition, there is an investment tax credit of 0.10. What effect does this new information have on the user cost of capital?

Assume That the User Cost of Capital (C)is Simply