Four years ago Sierra Instruments of Monterey, California spent $200,000 for equipment to manufacture standard gas flow

Question:

Four years ago Sierra Instruments of Monterey, California spent $200,000 for equipment to manufacture standard gas flow calibrators. The equipment was depreciated by MACRS using a 3-year recovery period. The gross income for year 4 was $100,000, with operating expenses of $50,000. Use an effective tax rate of 40% to determine the CFAT in year 4 if the asset was

(a) Discarded with no salvage value in year 4

(b) Sold for $20,000 at the end of year 4 (neglect any taxes that may be incurred on the sale of the equipment). The MACRS depreciation rate for year 4 is 7.41%.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...