Computation of incremental cash flows and free cash flows

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Reference no: EM1314263

An expansion has the following projects for the next two years (in millions) and after year three the net free cash flows are expected to grow at 6% forever. The company's cost of capital is 8%.

	Year 1	Year 2
Revenues	900	950

Operating expenses	300	470
(not depreciation)
Depreciation	125	120
Increase in Working Capital	20	20
Capital expenditures	75	95
Marginal corporate tax rate	40%	40%

A. What are the incremental earnings for years 1 and 2

B. What are the free cash flows for this project for the years 1 and 2

C. What is the present value of the free cash flows of this project?

Reference no: EM1314263

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