Question

You have just purchased a new DVD player to show videos to your customers. The DVD player costs $500, and you depreciate the machine at a rate of 25% each year. You can borrow money from the bank at 10%, or receive 6% for depositing money at the bank. The expected inflation rate in the coming year is 5%. You used the company's own funds to purchase the DVD player. The firm's user cost of capital for the first year is:__________.
A. $130
B. $150.
C. $155.
D. $175.

Answer 1

Answer: $130

Explanation:(.25 + .06 - .05)*500