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

Year 1

Year 2

Revenues

125.0

160.0

COGS and Operating expenses(other thandepreciation)

40.0

60.0

Depreciation

25.0

36.0

Increase in working capital

5.0

8.0

Capital expenditures

30.0

40.0

Corporate tax rate

20%

20%

a. What are the incremental earnings for this project for years 1 and2?

b. What are the free cash flows for this project for the first twoyears?

a. What are the incremental earnings for this project for years 1 and2?

The incremental earnings for year 1 is $

nothing

million. (Round to one decimalplace.)

The incremental earnings for year 2 is $

nothing

million. (Round to one decimalplace.)

b. What are the free cash flows for this project for the first twoyears?

The free cash flow for year 1 is $

nothing

million. (Round to one decimalplace.)

The free cash flow for year 2 is $

nothing

million. (Round to one decimalplace.)