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):

a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goods sold is included as part of operating expenses.)

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

Year 1 Year 2 Revenues 127.1 157.8 Operating Expenses (other than depreciation) 49.1 66.6 Depreciation 21.8 33.6 Increase in Net Working Capital 3.8 8.7 Capital Expenditures 26.5 39.8 Marginal Corporate Tax Rate (%) 21 21