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):

Year 1 Year 2 Revenues 120.4 158.9 COGS and Operating Expenses (other than depreciation) 43.9 53.5 Depreciation 27.5 26.8 Increase in Net Working Capital 3.8 8.2 Capital Expenditures 31.7 43.3 Marginal Corporate Tax Rate 35% 35%

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
Sales	$
Operating Expenses	$
Depreciation	$
EBIT	$
Income tax at 35%	$
Unlevered Net Income	$

	Year 2
$
$
$
$
$
$

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

Calculate the free cash flows of this project below:(Round to one decimal place.)

Free Cash Flow (millions)		Year 1
Unlevered Net Income	$
Depreciation	$
Capital Expenditure	$
Change in NWC	$
Free Cash Flow	$

	Year 2
$
$
$
$
$