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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 102.3 166.1 COGS and Operating expenses (other than depreciation) 48.9 56.1 Depreciation 23.2 33.5 Increase in working capital 4.9 7.5 Capital expenditures 26.7 36.8 Corporate tax rate 20% 20%

a. What are the incremental earnings for this project for years 1 and 2?

b. What are the free cash flows for this project for the first two years?

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