Smith is determining the viability of a new product line. The new product will require a $460,000 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 $12,000, account payable increasing by $8,000 and account receivables increasing by $11,000. 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, annual interest expense is $11,000 per year, and the required return for this project is 12 percent.

a. Find CAPEX in year 0

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

c. Find year 2 EBIT.

d. Find the year 2 cash flow, FCF2

e. Find net proceeds and terminal cash flow if equipment is sold in year 3 for $100,000.