Figure 17.4: Capital Arbitrage
-Consider Figure 17.4. Write down the equation for the user cost of capital. Discuss what happens to the user cost in the following scenarios:
a. the corporate income tax rises;
b. the real interest rises;
c. there is an increase in capital gains.
Graphically show what happens to capital investment.

Question

Figure 17.4: Capital Arbitrage 
-Consider Figure 17.4. Write down the equation for the user cost of capital. Discuss what happens to the user cost in the following scenarios:
a. the corporate income tax rises;
b. the real interest rises;
c. there is an increase in capital gains.
Graphically show what happens to capital investment.

Quizplus · Accepted Answer

The Answer of Figure 17.4: Capital Arbitrage 
-Consider Figure 17.4. Write down the equation for the user cost of capital. Discuss what happens to the user cost in the following scenarios:
a. the corporate income tax rises;
b. the real interest rises;
c. there is an increase in capital gains.
Graphically show what happens to capital investment.