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In year 1, Firm A paid $50,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted S3,140 and
In year 1, Firm A paid $50,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted S3,140 and $7,200 depreciation with respect to the asset. Firm A's marginal tax rate in both years was 35 percent. Now assume that Firm A borrowed S50,OOO to purchase the asset. In each year, it paid $3,800 annual interest on the debt. The interest payments were deductible. a. How does this change in facts affect Firm A's net cash flow attributable to the asset purchase in each year? b. How does this change in facts affect Firm A's adjusted basis in the asset at the end of each year? Complete this question by entering your answers in the tabs below. Required A Required B How does this change in facts affect Firm A's net cash flow attributable to the asset purchase in each year? (Cash outflows should be indicated by a minus sign.) Total cash flows before-tax Total tax (cost) or savings Net cash flow
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