Etobicoke 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	122.7	168.7
Operating Expenses (other than depreciation)	37.1	60.2
CCA	27.5	26.8
Increase in Net Working Capital	2.4	8.8
Capital Expenditures	26.8	42.7
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.)

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

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Part 1

a. Calculate the incremental earnings for Year 1 of this project below:(Round to one decimal place.)

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