Purchase Solution

Investment Tax Credit Effects for Equipment Capital

Not what you're looking for?

Ask Custom Question

I posted a problem earlier that basically said, "lets assume Congress is considering reinstating a 10% investment tax credit in order to stimulate the economy. The bill would apply to purchases of all new capital equipment, so it would increase the budget deficit by $100 billion per year on a static basis (i.e., before considering any feedback attempts). Explain why you would advocate or oppose this bill as a lobbyist for (a) General Motors, (b) Disney, (c) Exxon Mobil, (d) Georgia Pacific, (e) Citigroup, (f) Toyota, (g) Merck, (h) Capital One (sub-prime consumer loans), (i) Toll Brothers Builders.

I did get an explanation of how each company is currently doing in the market, but no explanation as to whether or not I should oppose such a bill for ALL NEW CAPITAL EQUIPMENT with respect to each company. The person who answered it seemed to focus on tax incentives across the board, versus an ITC focused on ALL NEW EQUIPMENT. Let's look at Citigroup, a lending firm. In that case, would I lobby for or against such an ITC and if so, why or why not? The same for General Motors, Exxon, etc. I have to think that it is the nature of each industry that must be considered?

Purchase this Solution
Solution Summary

Investment Tax Credit Effects for Equipment Capital is considered.

Solution Preview

Investment tax credit is a tax credit, which is an amount deducted directly from federal income tax otherwise payable, calculated as a fixed percentage of eligible expenditures on scientific research and experimental development.
The current bill would apply to purchases of all new capital equipment,
(a) General Motors,
General Motors would support the bill, because it makes the purchases of capital equipment cheaper for General Motors.
However, a part of the GM business is finance business and this would be adversely affected because the demand for loans for capital equipment would go down. So if the motor manufacturing interests are predominant then GM will support the ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Can Investment Tax Credits Reduce Employment? Explain

    Strong substitution effects mean that the replacement is substantial. Investment tax credits reduce the price of capital, which encourages firms to replace labor with capital, for example by replacing assembly line workers with robots.

  • Strategic Capital Investment Decisions

    How much is Smith expected to save each year if it installs the equipment (including tax effects)? B. How much will Smith lose each year if it does not install the equipment (including tax effects)? C.

  • Faith's Fine Furniture Corporation and Faye's Fashions

    Therefore, we need to debit cash of $5,000 and credit $5,000 in stockholders' equity. For transaction 4, the company purchases computer equipment for cash of $4,000. So, we have to credit cash of $4,000 and debit computer equipment of $4,000. 3.

  • NPV and IRR for SBS Automated Materials-Handling System

    For purposes of this analysis, assume that all cash flows and the related tax effects from the initial investment (acquisition of the new system and disposal of the old equipment) occur immediately.

  • Investment Tax Credits

    Thanks Answers: The Capital Investment Tax Credit is used to attract and grow capital-intensive industries. It is an annual credit, provided for up to twenty years, against the corporate income tax.

  • Operating Cost

    Answer: A tax credit is obtained in such a case.

  • Financial statement effects of buying non-current assets

    The answer to this question depends on whether the company uses the same method for book reporting as they do for tax reporting. Tax reporting would allow the first $108,000 to be expensed directly under Sec 179.

  • Capital Budgeting: IRR and Payback

    explain. 3.Suppose that an Investment Allowance in the form of a bonus taxation credit of 40 percent of the capital cost of new asset is reintroduced by the Government to stimulate investment in capitals goods. what would the imapct of the tax credit

  • Capital Budgeting for High Tech Production Inc

    The investment will produce $50,000 in income before depreciation and taxes for each of the six years. The corporation is in a 40 percent tax bracket and has a 10 percent cost of capital.

View More Related Solutions