Rocky Mountains 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 Revenues 130.0 175.0 Cost of goods sold and operating expenses other than depreciation 37.0 55.0 Depreciation 28.0 33.0 Increase in net working capital 4.5 7.5 Capital expenditures 32.0 44.0 Interest expenditures Marginal corporate tax rate 35% 35% a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows to the firm for this project for the first two years?

Rocky Mountains 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 Revenues 130.0 175.0 Cost of goods sold and operating expenses other than depreciation 37.0 55.0 Depreciation 28.0 33.0 Increase in net working capital 4.5 7.5 Capital expenditures 32.0 44.0 Interest expenditures Marginal corporate tax rate 35% 35% a. What are the incremental earnings for this project for years 1 and 2? b. What are the free cash flows to the firm for this project for the first two years?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

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