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

Year 1 Year 2 Revenues 124.6 159.7 Operating Expenses (other than depreciation) 46.9 52.5 Depreciation 21.4 34.2 Increase in Net Working Capital 3.3 7.8 Capital Expenditures 33.9 44.1 Marginal Corporate Tax Rate (%) 21 21

.

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?

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Part 1

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.)

Incremental Earnings Forecast (millions)		Year 1		Year 2
Sales	$		$
Operating Expenses	$		$
Depreciation	$		$
EBIT	$		$
Income tax at 21%	$		$
Unlevered Net Income	$		$

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

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