Calico Fabrics Limited is evaluating a new three-year project, for which the initial outlay will be $160,000. Profit before depreciation and tax is expected to be $34,000 in year 1, $44,000 in year 2 and $54,000 in year 3. The new equipment will be depreciated at 20 percent diminishing value, and is expected to be sold at the end of three years for $90,000. The company tax rate is 30 percent.
Refer to Exhibit 2. The depreciation expense in Year 2 is: