1. Sara’s daughter Tara completed her senior year of college in 2017. Sara paid $5,000 in qualified education expenses for Tara in 2017. Sara is a single taxpayer and has an AGI of $50,000 for 2017. What, if any, education credit may Sara claim and how much is the credit?

a. American Opportunity Tax Credit in the amount of $1,800.

b. Lifetime Learning Credit in the amount of $2,000.

c. Sara is not eligible to claim an education credit.

d. American Opportunity Tax Credit in the amount of $2,500.

2. In the current year, a company paid interest of $40,000, had net capital expenditures of $300,000, and issued net new debt of $75,000. In addition, the company reported cash flow from operating activities of $600,000, cash flow from investing activities of ($250,000), and cash flow from financing activities of $65,000. The marginal tax rate is 35%. Compute the free cash flow to the firm.

$375,000

$340,000

$326,000

$275,000