The ABC Corporation is contemplating purchasing a new computer system that would yield a before-tax return of 30 percent.The system would depreciate at a rate of 3 percent per year.The after-tax interest rate is 11 percent,the corporation tax rate is 35 percent,and a typical shareholder of ABC has a marginal tax rate of 30 percent.Assume for simplicity that there are no depreciation allowances or investment tax credits.Do you expect ABC to buy the new computer system?
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