Smith is determining the viability of a new product line. The new product will require a $360,000 piece of equipment. Shipping and installation will cost $40,000. The equipment has a 3-year tax life, and the allowed depreciation for such property are 33%, 45%, 15%, and 7% for years 1 through 4. Inventory will increase by $15,000, accounts payable increasing by $8,000 and account receivables increasing by $10,000. The product line is expected to generate annual revenue (sales) of $126,000 per year, with cost of goods sold  being $56,000 per year and other costs (excluding depreciation) of $12,000 per year. The tax rate is 30 percent, the annual interest expense is $11,000 per year, and the required return for this project is 12 percent.

Find the depreciation for years 1, 2, 3, and 4. 

Find year 2 EBIT. Find the year 2 cash flow.