Elmdale Enterprises is deciding whether to expand its production facilities. Althoughlong-term cash flows are difficult toestimate, management has projected the following cash flows for the first two years(in millions ofdollars):

Year 1

Year 2

Revenues

122.4

160.1

COGS and Operating Expenses(other thandepreciation)

37.3

61.2

Depreciation

20.3

25.1

Increase in Net Working Capital

3.5

8.2

Capital Expenditures

27.7

40.9

Marginal Corporate Tax Rate

35%

35%

a. What are the incremental earnings for this project for years 1 and2?(Note: Assume any incremental cost of goods sold is included as part of operatingexpenses.)

b. What are the free cash flows for this project for years 1 and2?

a. What are the incremental earnings for this project for years 1 and2?(Note: Assume any incremental cost of goods sold is included as part of operatingexpenses.)

Calculate the incremental earnings of this projectbelow:(Round to one decimalplace.)

Incremental Earnings Forecast (millions)

Year 1

Sales $

Operating Expenses $

Depreciation $

EBIT $

Income tax at 35% $

Unlevered Net Income $

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