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):

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.)

Incremental Earnings Forecast (millions)		Year 1		Year 2
Sales	$		$
Operating Expenses
Depreciation
EBIT	$		$
Income tax at 35%
Unlevered Net Income	$		$

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

Free Cash Flow (millions)		Year 1		Year 2
Unlevered Net Income	$		$
Depreciation
Capital Expenditure
Change in NWC
Free Cash Flow	$		$

Year 1 Year 2 e 157.1 122.3 32.6 Revenues COGS and Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate 25.7 3.8 27.7 35% 51.7 30.8 7.8 43.2 35%