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Problem A: A firm purchases an asset with a cost of $12,000. The firm depreciates...

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Problem A: A firm purchases an asset with a cost of $12,000. The firm depreciates the asset to zero over three years using straight-line for book purposes and accelerated for tax purposes (depreciation amounts as shown). Assume the tax rate is 21%. 1. Calculate the firm's taxable income for year 1 and year 2 . 2. Calculate the firm's taxes payable for year 1 and year 2 . 3. Calculate the tax base of the asset at the end of year 1 and year 2. 4. Calculate the firm's pre-tax income for year 1 and year 2. 5. Calculate the carrying value of the asset at the end of year 1 and year 2 . 6. At the end of year 1 , the firm will report: a) Deferred tax assets of $420 b) Deferred tax liabilities of $420 c) No deferred taxes 7. At the end of year 2 , the firm will report: a) Deferred tax assets of $420 b) Deferred tax liabilities of $420 c) Deferred tax assets of $840 d) Deferred tax liabilities of $840 c) No deferred taxes 8. Calculate the income tax expense for year 1 and year 2. 9. Assume the same information as above, but early in year 2 the tax rate increases to 28%. The effective tax rate in year 2 will be compared to 28% (higher lower/same?)

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