Question

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):

	Year 1	Year 2
Revenues	120.4	153.2
COGS and Operating Expenses​ (other than​ depreciation)	37.8	69.1
Depreciation	22.8	29.6
Increase in Net Working Capital	3.7	7.6
Capital Expenditures	27.8	39.1
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.)

Calculate the incremental earnings of this project​ below:  ​(Round to one decimal​ place.)

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

	Year 2
$
$
$
$
$
$

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

Calculate the free cash flows of this project​ below:  ​(Round to one decimal​ place.)

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

	Year 2
$
$
$
$
$

Answer 1