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?

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 2 160 Revenues Costs of goods sold and operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate 125 40 25 5 30 60 36 8 40 35% 35% a. Year 1 Year 2 Revenue:s Operating expenses (other than depreciation) Depreciation Earnings before taxes Taxes Earnings After taxes (Incremental earnings): b. Year 1 Year 2 Earnings After taxes (Incremental earnings) Depreciation Capital Expenditures: Increase in net working capital: Free Cash Flows