Evaluating proposed expansion-incremental free cash flow

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Reference no: EM13874636

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 3 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 40%. 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.

Round 2 decimal places

Incremental FCF for year 0 =

Incremental FCF for year 1=

For year 2=

For year 3=

Year 4=

Year 5=

Year 6=

Year 7=

Year 8=

Year 9=

Reference no: EM13874636

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