Question content area topPart 1Elmdale 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):LOADING....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? **Incremental Earnings Forecast (millions)**| | **Year 1** | **Year 2** ||----------------------|------------------|------------------|| **Sales** | $ [ ] | $ [ ] || **Operating Expenses** | $ [ ] | $ [ ] || **Depreciation** | $ [ ] | $ [ ] || | | || **EBIT** (Earnings Before Interest and Taxes) | $ [ ] | $ [ ] || | | || **Income tax at 21%**| $ [ ] | $ [ ] || | | || **Unlevered Net Income** | $ [ ] | $ [ ] |This table displays a financial projection over two years, broken down into various financial components. Each category provides an empty field for data entry, allowing for the calculation of specific financial outcomes: - **Sales**: Total revenue expected.- **Operating Expenses**: Costs directly associated with business operations.- **Depreciation**: Allocation of the cost of an asset over its useful life.- **EBIT**: Calculated as Sales minus Operating Expenses and Depreciation.- **Income tax at 21%**: Tax applied to EBIT.- **Unlevered Net Income**: Final income measure post-tax without factoring in debt interest. This structure forms the basis for performing financial analysis and forecasting, aiding in future planning and decision-making. ### Financial Overview for Year 1 and Year 2This table summarizes key financial data over a two-year period.#### Yearly Breakdown:- **Revenues**: - Year 1: 121.3 - Year 2: 156.1- **Operating Expenses (other than depreciation)**: - Year 1: 43.3 - Year 2: 67.9- **Depreciation**: - Year 1: 20.7 - Year 2: 29.6- **Increase in Net Working Capital**: - Year 1: 3.9 - Year 2: 8.3- **Capital Expenditures**: - Year 1: 30.4 - Year 2: 35.2- **Marginal Corporate Tax Rate**: - Both years: 21%This financial data is essential for understanding the company's growth and expense management over the two years. The consistency in the marginal corporate tax rate shows stability in fiscal policy affecting the organization.

INTRODUCTION Incremental earning is equal to Revenues less operating expenses, depreciation, and tax…

Answered: Part 1 Elmdale Enterprises is deciding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question content area top

Part 1

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?

**Incremental Earnings Forecast (millions)**

| | **Year 1** | **Year 2** |
|----------------------|------------------|------------------|
| **Sales** | $ [ ] | $ [ ] |
| **Operating Expenses** | $ [ ] | $ [ ] |
| **Depreciation** | $ [ ] | $ [ ] |
| | | |
| **EBIT** (Earnings Before Interest and Taxes) | $ [ ] | $ [ ] |
| | | |
| **Income tax at 21%**| $ [ ] | $ [ ] |
| | | |
| **Unlevered Net Income** | $ [ ] | $ [ ] |

This table displays a financial projection over two years, broken down into various financial components. Each category provides an empty field for data entry, allowing for the calculation of specific financial outcomes:

- **Sales**: Total revenue expected.
- **Operating Expenses**: Costs directly associated with business operations.
- **Depreciation**: Allocation of the cost of an asset over its useful life.
- **EBIT**: Calculated as Sales minus Operating Expenses and Depreciation.
- **Income tax at 21%**: Tax applied to EBIT.
- **Unlevered Net Income**: Final income measure post-tax without factoring in debt interest.

This structure forms the basis for performing financial analysis and forecasting, aiding in future planning and decision-making.

### Financial Overview for Year 1 and Year 2

This table summarizes key financial data over a two-year period.

#### Yearly Breakdown:

- **Revenues**:
- Year 1: 121.3
- Year 2: 156.1

- **Operating Expenses (other than depreciation)**:
- Year 1: 43.3
- Year 2: 67.9

- **Depreciation**:
- Year 1: 20.7
- Year 2: 29.6

- **Increase in Net Working Capital**:
- Year 1: 3.9
- Year 2: 8.3

- **Capital Expenditures**:
- Year 1: 30.4
- Year 2: 35.2

- **Marginal Corporate Tax Rate**:
- Both years: 21%

This financial data is essential for understanding the company's growth and expense management over the two years. The consistency in the marginal corporate tax rate shows stability in fiscal policy affecting the organization.

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