investment tax credit, Public Economics

The ABC corporation is contemplating purchasing a new computer system that would yield a before-tax return of 30 percent. The system depreciates at 10 percent a year. The after-tax interest rate is 8 percent, the corporation tax rate is 35 percent, and depreciation allowances follow the straight-line method over five years. There is no investment tax credit. Do you expect ABC to buy the new computer system? Explain your answer.

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