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?
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?
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 2STP
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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)
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?
Transcribed Image Text:Altho Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the
ote: As following cash flows for the first two years (in millions of dollars):
a. What are tho incromontal earnings for thic proinct for rears 1 and 22 (NotoAssume an neromontal.cost oflnoods cold ie includod as part ofonoratino
expenses.)
b. What are
- X
Data table
a. What are
(Click on the following icon e in order to copy its contents into a spreadsheet.)
expenses.)
Year 1
Year 2
Calculate the
Revenues
129 .2
157.8
Operating Expenses (other than depreciation)
Depreciation
Increase in Net Working Capital
Capital Expenditures
Marginal Corporate Tax Rate
Increm
31.9
62.3
26.9
34.4
Sales
2.2
7.8
Operati
29.4
39.5
Depreci
21%
21%
EBIT
Transcribed Image Text: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
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?
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.)
Calculate the incremental earnings of this project below: (Round to one decimal place.)
Incremental Earnings Forecast (millions)
Year 1
Year 2
Sales
2$
Operating Expenses
2$
Depreciation
$24
EBIT
2$
Income tax at 21%
Unlevered Net Income
24
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