14. 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 for the data in Excel format):

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?

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