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
|
128.6
|
157.4
|
|
|
COGS and Operating Expenses (other than depreciation)
|
30.4
|
54.9
|
|
|
Depreciation
|
21.1
|
44.4
|
|
|
Increase in Net Working Capital
|
3.4
|
7.2
|
|
|
Capital Expenditures
|
26.5
|
35.4
|
|
|
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?