problem: An expansion has the following projects for the next 2 years [in millions] & after year 3 the net free cash flows are expected to grow at 6 percent 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] find out the incremental earnings for years 1 and 2
[B] find out the present value of the free cash flows of this project?
[C] find out the free cash flows for this project for the years 1 and 2