Calculate the user cost of capital of a machine that costs $5000 and depreciates at a rate of 25%,when the expected real interest rate is 5%.
A)$150
B)$500
C)$1500
D)$5000

Question

Quizplus · Accepted Answer

The user cost of capital is calculated as the sum of depreciation and the real interest cost. Depreciation is 25% of $5000, which is $1250. The real interest cost is 5% of $5000, which is $250. Adding these together gives $1500.

Calculate the User Cost of Capital of a Machine That