Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the cash flows below for the first two years (in millions).

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

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

b. What are the free cash flows for this project for years 1 and 2? Free Cash Flows (million) Year Plus: Depreciation Less: Capital Expenditures Less: Increases in NWC Free Cash Flows: 160 Year Sales Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate UUUUU 40S 25s 2 S 20 S 35% 35% a. What are the incremental earnings for this project for years 1 and 2? Incremental Earnings Forecast (million) Year Sales Less: Operating Expenses Less: Depreciation EBIT Less: Income Tax at 35% Earnings After taxes (Incremental earnings)