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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
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 | 101.9 | 165.4 | ||
COGS and Operating expenses other than depreciation | 46.6 | 35.5 | ||
Depreciation | 29.5 | 32.7 | ||
Increase in net working capital | 5.7 | 8.4 | ||
Capital expenditures | 29.1 | 39.4 | ||
Marginal corporate tax rate | 20 | % | 20 | % |
a. What are the incremental earnings for this project for years 1 and 2?
b. What are the free cash flows for this project for the first two years?
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