V35 A 123 B Problem 9-14 fx E G H | J K M N P 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): 10 11 13 14 15 4567802 22345 Year 1 Year 2 Revenues 125 160 Operating expenses (other than depreciation) 40 60 Depreciation 25 36 Increase in net working capital 2 8 Capital Expenditures 30 40 12 Marginal Corporate tax rate: 21% 21% 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? 676222222222223 16 17 a. 18 Revenues 19 Operating expenses (other than depreciation) 20 Depreciation 21 Earnings before taxes Taxes Year 1 Year 2 125.0 160.0 -40.0 -60.0 -25.0 -36.0 60.0 64.0 -12.6 -13.4 Earnings After taxes (Incremental earnings): 24 25 b. Year 1 Year 2 Earnings After taxes (Incremental earnings): 0.0 0.0 28 29 30 Depreciation Capital Expenditures: Increase in net working capital: Free Cash Flows: 9-5 9-12 9-13 9-14 9-18 9-27 25.0 36.0 -30.0 -40.0 -2.0 -8.0 +