When a company must consider taxes in determining investment,its desired capital stock is chosen such that

Question

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The company must consider taxes in determining investment, and the desired capital stock is chosen such that MPKf = uc/(1-t). This is because the after-tax marginal product of capital (MPKf) must equal the after-tax user cost of capital (uc/(1-t)). This ensures that the company maximizes its after-tax profits by investing up to the point where the after-tax MPKf equals the after-tax user cost of capital.

When a Company Must Consider Taxes in Determining Investment,its Desired