Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently it plans to add two additional tank cars to its fleet four years from now.​ However, a proposed plant expansion will require​ Mersey's transport division to add these two additional tank cars in 1 years' time rather than in 4 years. The current cost of a tank car is $1.9 million, and this cost is expected to remain constant.​ Also, while tank cars will last​ indefinitely, they will be depreciated​ straight-line over a​ five-year life for tax purposes. Suppose​ Mersey's tax rate is 20%. When evaluating the proposed​ expansion, what incremental free cash flows should be included to account for the need to accelerate the purchase of the tank​ cars? Incremental FCF for year 0 is how much? (Round to two decimal places and outflows as negative​ values.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Mersey Chemicals manufactures polypropylene that it ships to its customers via tank car. Currently it plans to add two additional tank cars to its fleet four years from now.​ However, a proposed plant expansion will require​ Mersey's transport division to add these two additional tank cars in 1 years' time rather than in 4 years. The current cost of a tank car is $1.9 million, and this cost is expected to remain constant.​ Also, while tank cars will last​ indefinitely, they will be depreciated​ straight-line over a​ five-year life for tax purposes. Suppose​ Mersey's tax rate is 20%. When evaluating the proposed​ expansion, what incremental free cash flows should be included to account for the need to accelerate the purchase of the tank​ cars? Incremental FCF for year 0 is how much? (Round to two decimal places and outflows as negative​ values.)

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