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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 $3,140 and
In year 1, Firm A paid $50,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted $3,140 and $7,200 depreciation with respect to the asset. Firm A's marginal tax rate in both years was 21 percent. Now assume that Firm A borrowed $50,000 to purchase the asset. In each year, it paid $3,800 annual interest on the debt. The interest payments were deductible. Required: a. Compute Firm A's net cash flow attributable to the asset purchase in each year. b. Compute 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 Compute Firm A's adjusted basis in the asset at the end of each year. Adjusted basis at end of Year 1 Adjusted basis at end of Year 2 Amount
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