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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

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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 for the first two years (in millions of dollars): O Revenues COGS and Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 125.3 41.6 27.1 3.3 25.8 35% Year 2 169.7 62.2 33.8 8.8 40.6 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.) b. What are the free cash flows for this project for years 1 and 2? Calculate the incremental earnings of this project below: (Round to one decimal place.) Incremental Earnings Forecast (mill Year 1 Sales A A Operating Expenses Depreciation EBIT A A Income tax at 35% A A Unlevered Net Income

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