What is the user cost of capital for a firm when the rate of depreciation of machine is 20% and the cost of financial capital is 15%?
Show Hint
- 37%
- 50%
- 35%
- 31%
The Correct Option is C
Solution and Explanation
The user cost of capital is given by the formula: \[ \text{User Cost of Capital} = \text{Depreciation Rate} + \text{Cost of Financial Capital}. \] Step 2: Substituting the given values.
The rate of depreciation is 20% and the cost of financial capital is 15%. Therefore, \[ \text{User Cost of Capital} = 20% + 15% = 35%. \] Step 3: Conclusion.
The correct answer is (C) 35%, as this is the sum of the depreciation rate and the cost of financial capital.
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