Year $2$

Sales........................................................................$$1,800,000$

Less Cost of sales.........................................................$-950,000$

Gross profit................................................................ $850,000$

Less Selling general and administrative expense................$-390,000$

Less Depreciation Expense...............................................$-67,500$

Operating income.......................................................$\mathrm{.}392,500$

Less Interest expense......................................................$-55,000$

Income before taxes...................................................$\mathrm{.}337,500$

Less Taxes $(21\%)...........................................................-70,875$

Net income after taxes $..............................................$$$266,625$

In addition to the amounts listed above:

a$)$ A phase one environmental study for the project was completed one year ago at a cost of $$5,500,$ which has not yet been paid but, per the agreement with the engineering firm, will be due at the end of year $2$ if the project goes forward.

b$)$ $$300,000$ per year of annual sales of another product with a $40$ percent gross profit margin will be lost if this project goes forward.

c$)$ Rather than moving ahead with the project, the existing building planned to be used for the project can be rented out to another firm for $$85,000$ per year.

d$)3$ years ago, $$9,500$ was spent on a favorable marketing feasibility study.