User cost of capital, Microeconomics

User Cost of Capital

= Economic Depreciation + (Interest Rate)(Value of Capital)

- Example

  • An Airline buys Boeing 737 for $150 million with the expected life of 30 years

- Annual economic depreciation =   $150 /30 million = $5 million

-  Interest rate = 10 percent

  • User Cost of Capital = $5 million + (.10) ($150 million - depreciation)

- Year 1 = $5 million + (.10)($150 million) = $20 million

- Year 10 = $5 million + (.10) ($100 million) = $15 million

- Rate per dollar of capital

  • r = Depreciation Rate + Interest Rate

- Airline Example

  • Depreciation Rate = 1/30 = 3.33/yr
  • Rate of Return = 10%/yr

- User Cost of Capital

•  r = 3.33 + 10 = 13.33%/yr 

Posted Date: 10/12/2012 2:53:35 AM | Location : United States







Related Discussions:- User cost of capital, Assignment Help, Ask Question on User cost of capital, Get Answer, Expert's Help, User cost of capital Discussions

Write discussion on User cost of capital
Your posts are moderated
Related Questions
Arbitration The use of a third party to describe between two sides dead locked in a negotiation. The arbitrator's decision can be binding or not binding, as before agreed upon

prove that marginal utility of x=the price of commodity x.

differentiate between normative and positive statements in economics with the help of a statement

THEORY OF PRODUCTION: Production activities related to goods and services require inputs. Typically, the set of inputs includes labour, capital equipments and raw materials. T

How to use Demand and Supply tools to analyze the case of the Egyptian labor market?

What is utility maximization according to consumer behavior? Consumer Behavior: Utility Maximization A foundational hypothesis onto individual behavior within modern econ

Indifference curves present all possible combinations of market baskets that give the similar level of satisfaction to a person. Indifference Curves 1. Indifferen

Building up a Stable and Viable Export Production Base: It is necessary to make a deliberate production plan and to earmark a part of production for export even if there is a

Elasticity is a term broadly used in economics to signify the “responsiveness of one variable to changes in to another.” Types of Elasticity can be explained as follows: Th

NEER Vs REER: In a situation where there are multiple trade partners, the effect of cross-currency movements are judged by nominal effective exchange rate (NEER) and real effe