Determine the user cost of capital find the

Reference no: EM13456170

Fred's Frisbees is trying to determine how many Frisbee pressing machines to buy for its new factory. The real price of a new pressing machine is 7500 Frisbees. The depreciation rate on these Frisbee presses is equal to 10% per year. The expected future marginal product of these fabricating machines is given by the expression 3350 - 20K, measured in Frisbees. The real interest rate is 8% (.08).

(a) What is the user cost of capital?

(b) What is the profit-maximizing number of Frisbee presses for Fred's to purchase for its new factory?

(c) Before purchasing the machines Fred's finds that it will be subject to a new tax of 32.5 percent on all of its revenue. Now what is the profit maximizing number of machines for Fred's to purchase?

Reference no: EM13456170

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