Question

ersey 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 2 ​years' time rather than in 4 years. The current cost of a tank car is $2.0 ​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?

***(Round to two decimal places and outflows as negative​ values.)

Answer 1