Question

In year 1. Fim A paid $58,000 cash to purchase a tangible business asset. In year 1 and year 2, it deducted $3,620 and $8,000 depreciation with respect to the asset. Firm A's marginal tax rate in both years was 21 percent. 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 net cash flow attributable to the asset purchase in each year. (Cash outflows should be indicated by a minus sign. Round your intermediate calculations and final answers to nearest whole dollar amount.) Year 1 Year 2 Before-tax cash flows Tax (cost) or savings Net cash flow Required A Required B > 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 < Required A Required B

Answer 1

Answer:

A)

Compute Firm A’s net cash flow attributable to the asset purchase in each year

	Year-1	Year-2
Before Tax cash flow	58000
Tax (cost) or Savings for year-1 (Annual Depreciation x Tax Rate) ($3,620 x 21%)	760.2
Tax (cost) or Savings for year-2 (Annual Depreciation x Tax Rate) ($8,000 x 21%)		1680
Net Cash Flow	58760.2	1680

B)

Initial Cost of assets	58000
Less: Depreciation for year-1	3620
Adjustment basis at the end of year-1	54380
Adjustment basis at the end of year-1	54380
Less: Depreciation for year-2	8000
Adjustment basis at the end of year-2	46380

Adjustment basis at the end of year-1	54380
Adjustment basis at the end of year-2	46380