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): (Click on the following icon in order to copy its contents into a spreadsheet.) Revenues COGS and Operating expenses other than depreciation Depreciation Increase in net working capital Capital expenditures Marginal corporate tax rate Year 1 103.7 43.3 26.1 3.9 30.4 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? a. What are the incremental earnings for this project for years 1 and 2? The incremental earnings for year 1 is $ 25% million. (Round to one decimal place.) million. (Round to one decimal place.) The incremental earnings for year 2 is $ b. What are the free cash flows for this project for the first two years? The free cash flow for year 1 is $ million. (Round to one decimal place.) million. (Round to one decimal place.) The free cash flow for year 2 is $ Year 2 156.5 40.1 33.2 7.4 40.8 25%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
Elmdale Enterprises is assessing the potential expansion of its production facilities. While long-term cash flows are challenging to estimate, the management has outlined the projected cash flows for the initial two years (figures in millions of dollars):

### Projected Cash Flows:

|                | Year 1 | Year 2  |
|----------------|--------|---------|
| **Revenues**   | 103.7  | 156.5   |
| **COGS and Operating expenses other than depreciation** | 43.3   | 40.1    |
| **Depreciation** | 26.1   | 33.2    |
| **Increase in net working capital** | 3.9    | 7.4     |
| **Capital expenditures** | 30.4   | 40.8    |
| **Marginal corporate tax rate** | 25%    | 25%     |

#### Questions:
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?

#### Inputs for Calculations:
- The incremental earnings for year 1 are **$____ million.** (Round to one decimal place.)
- The incremental earnings for year 2 are **$____ million.** (Round to one decimal place.)

- The free cash flow for year 1 is **$____ million.** (Round to one decimal place.)
- The free cash flow for year 2 is **$____ million.** (Round to one decimal place.)
Transcribed Image Text:Elmdale Enterprises is assessing the potential expansion of its production facilities. While long-term cash flows are challenging to estimate, the management has outlined the projected cash flows for the initial two years (figures in millions of dollars): ### Projected Cash Flows: | | Year 1 | Year 2 | |----------------|--------|---------| | **Revenues** | 103.7 | 156.5 | | **COGS and Operating expenses other than depreciation** | 43.3 | 40.1 | | **Depreciation** | 26.1 | 33.2 | | **Increase in net working capital** | 3.9 | 7.4 | | **Capital expenditures** | 30.4 | 40.8 | | **Marginal corporate tax rate** | 25% | 25% | #### Questions: 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? #### Inputs for Calculations: - The incremental earnings for year 1 are **$____ million.** (Round to one decimal place.) - The incremental earnings for year 2 are **$____ million.** (Round to one decimal place.) - The free cash flow for year 1 is **$____ million.** (Round to one decimal place.) - The free cash flow for year 2 is **$____ million.** (Round to one decimal place.)
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Forecasting Financial Statement
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education