Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult toestimate, management has projected the following cash flows for the first two years (in millions of dollars):
Year 1 Year 2
Revenues
123.4
163.3
COGS and Operating Expenses (other than depreciation)
31.2.
68.9
Depreciation
27.66
28.6
Increase in Net Working Capital
2.3
8.1
Capital Expenditures
33.9
44.7
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 projectbelow: (Round to one decimal place.)
Incremental Earnings Forecast (millions)
Year 1
Sales
$
Operating Expenses
$
Depreciation
$
EBIT
$
Income tax at 35%
$
Unlevered Net Income
$
Answers: 2
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