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.)

Calculate the incremental earnings of this project below:(Round to one decimal place.)

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

Year 1 122.3 32.6 25.7 3.8 27.7 35% Year 20 157.1 51.7 30.8 Revenues COGS and Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate 7.8 43.2 35% Year 1 Incremental Earnings Forecast (millions) Sales Operating Expenses Depreciation EBIT Income tax at 35% Unlevered Net Income Free Cash Flow (millions) Year 1 Year 2 Unlevered Net Income Depreciation Capital Expenditure Change in NWC Free Cash Flow