To determine the operating cash flow (OCF) for Year 2, we need to follow these steps:

1. Calculate Depreciation Expense for Year 2:

   • The initial equipment investment is $490,000$.
   • The depreciation rate for Year 2 is $40\%$.
   • Depreciation Expense (Year 2) = $490,000 \times 0.40 = 196,000$.

2. Determine Earnings Before Interest and Taxes (EBIT):

   • Revenue in Year 2 = $221,000$
   • Variable costs in Year 2 = $91,000$
   • Fixed costs: The fixed cost for the project is not directly given in the problem. However, the advertising campaign fee of $23,000$ is relevant only for calculating OCF but is not included as an operating cost for Year 2.

   Without additional information on fixed costs, we’ll assume the EBIT calculation is based on the given revenue and variable costs only: $\text{EBIT} = \text{Revenue} - \text{Variable Costs} - \text{Depreciation Expense}$ Plugging in the values: $\text{EBIT} = 221,000 - 91,000 - 196,000 = -66,000$

3. Calculate Tax on EBIT:

   • Since EBIT is negative, we won't have any tax expenses in Year 2.
   • Tax = $-66,000 \times 0.35 = 0$ (no tax effect as there’s no taxable income).

4. Calculate Operating Cash Flow (OCF):

   • OCF is calculated using the formula: $\text{OCF} = (\text{EBIT} + \text{Depreciation}) \times (1 - \text{Tax Rate})$ Substituting the values we have: $\text{OCF} = (-66,000 + 196,000) = 130,000$ Hence, the Operating Cash Flow (OCF