Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are...
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Finance
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
128.9
151.7
COGS and Operating Expenses (other than depreciation)
34.5
55.1
Depreciation
26.7
43.1
Increase in Net Working Capital
2.4
8.5
Capital Expenditures
32.9
41.2
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?
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