Last month, a company specializing in wind power plant design and construction made a capital investment of $400,000 in physical simulation equipment that will be used for at least 5 years, after which it is expected to be sold for approximately 25% of its first cost. According to tax law, the simulation is MACRS-depreciated using a 3-year recovery period.

(a) Explain why there is a predictable tax implication when the simulator is sold.

(b) Determine by how much the sale will cause TI and taxes to change in year 5 if Te = 35%.