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 35 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.