Q1. The ABC Corporation is contemplating purchasing a new computer system that would yield a before-tax return of 30%. Also system depreciates at 10 percent a year. The after-tax interest rate is 8 % as corporation tax rate is 35 percent, and depreciation allowances follow the straight-line method over five years. For tax credit there is no investment. Would you expect ABC to buy the new computer system? Elucidate your answer.
Q2. The economy of Macro land is initially in long-run equilibrium. A severe drought causes an adverse provide shock. Graphically illustrate and elucidate?