A. You have forecast pro forma earnings of $1,144,000. This includes the effect of $232,000 in depreciation. you also forecast a decrease in working capital of $91,000 that year. What is your forecast of free cash flows for that year?

B. You purchased a machine for $1.00 million three years ago and have been applying straight-line depreciation to zero for a seven-year life. Your tax rate is 25%. If you sell the machine today, after 3 years of depreciation, for $700,000, what is your incremental cash flow from selling the machine?

C. Your company is deciding whether to expand its production facilities. Although long-term cash flows are hard to estimate,management has projected the following cash flows for the first 2 years (in millions of dollars):

year 1 year 2

Revenues 125.0 160.0

COGS and operating expenses 40.0 60.0

(other than depreciation)

Depreciation 25.0 36.0

Increase in Net Working Capital 2.0 8.0

Capital expenditures 30.0 40.0

Marginal corporate tax rate 35% 35%

1. what are the incremental earnings for this project for years 1 and 2? (assume any incremental cost of goods sold is included as part of operating expenses)
2. what are the free cash flows for this project for years 1 and 2?
3. what are the incremental earnings for this project for years 1 and 2? (assume any incremental cost of goods sold is included as part of operating expenses) Calculate the incremental earnings of this project using: sales, operating expenses, depreciation, EBIT, income tax of 35%, unlevered net income