Elmdale Enterprises is deciding whether to expand its production facilities.Although long-term cash flows are difficult to estimate,
Question:
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 | ||
Income | 124.2 | 159.9 | |
COGS and operating expenses (other than depreciation) | 48.8 | 53.2 | |
Depreciation | 25.2 | 40,9 | |
Increase in Net Working Capital | 2.7 | 8.4 | |
capital expenditure | 27.6 | 35.6 | |
Marginal Corporate Tax Rate | 35 % | 35 % |
a. What are the incremental profits from this project for years 1 and 2? (Note: Assume that any incremental cost of goods sold is included as part of operating expenses.)
Calculate the incremental profits for this project below: (Round to one decimal place.)
Incremental Earnings Forecast (millions) | Year 1 | |
Sales | ps | |
Operating expenses | ps | |
Depreciation | ps | |
EBIT | ps | |
Income tax at 35% | ps | |
Unleveraged net income | ps |
Year 2 | |
ps | |
ps | |
ps | |
ps | |
ps | |
ps |
b. What are the free cash flows for this project for years 1 and 2?