Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficultto estimate, management has projected the following cash flows for the first two years (in millions of dollars):a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goodssold is included as part of operating expenses.)b. What are the free cash flows for this project for years 1 and 2?a. What are the incremental earnings for this project for years 1 and 2? (Note: Assume any incremental cost of goodssold is included as part of operating expenses.)Calculate the incremental earnings of this project below: (Round to one decimal place.)Incremental Earnings Forecast (millions)SalesOperating ExpensesDepreciationEBITIncome tax at 21%Unlevered Net IncomeYear 1Year 2$$SA$69$GA6769$$$6969$$SA

Step 1:Calculate the incremental earnings for the project for year 1 and 2 as follows:…

Answered: Elmdale Enterprises is deciding whether…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 2STP

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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): 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? (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues Operating Expenses (other than depreciation) Depreciation Increase in Net Working Capital Capital Expenditures Marginal Corporate Tax Rate Year 1 126.8 42.5 25.9 3.3 26.5 21 % Year 2 165.1 62.5 26.5 7.4 35.4 21 %
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