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	123.1	150.1
COGS and Operating Expenses​ (other than​ depreciation)	32.5	67.3
Depreciation	20.6	38.7
Increase in Net Working Capital	3.9	8.1
Capital Expenditures	28.5	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 years 1 and​ 2?

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	$

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and Year 2

Answer 1

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