Question: Write down and explain the equilibrium or arbitrage condition for the purchase price of an asset that is subject to depreciation for income tax purposes.

Write down and explain the equilibrium or “arbitrage” condition for the purchase price of an asset that is subject to depreciation for income tax purposes. Let X equal the amount of pre-tax income yielded by the asset in the future. t equals the tax rate, δ equals the discount rate that converts future dollars to dollars in present value, and C equals the purchase price paid for the asset.

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