13. Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars) (see MyFinanceLab for the data in Excel format):

1 Year 2 2 Revenues 125 160 3 Operating Expenses (other than depreciation) 40 60 4 Depreciation 25 36 5 Increase in Net Working Capital 2 8 6 Capital Expenditures 30 40 7 Marginal Corporate Tax Rate 35% 35%

a. What are the incremental earnings for this project for years 1 and 2?

b. What are the free cash flows for this project for years 1 and 2?