Question

Help please!

A firm has costs of $1,000,000 for new investment outlays that are subject to an investment tax credit. The stated government purpose of having this investment tax credit is to stimulate the firm's business investments. Suppose the investment tax credit rate is 30%. How much does this reduce the cost of purchasing the assets? Assume an 8% rate of borrowing and a corporate tax rate of 40%.

Answer 1

ANSWER: The tax credit serves to immediately reduce the costs. The savings is 10% of one million dollars or $100,000r eduction in the purchase.