Mersey Chemicals manufactures polypropylene that it ships to its customers via t
ID: 2772405 • Letter: M
Question
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 2 years' time rather than in 4 years. The current cost of a tank car is $2.1 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 37%. 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 $ ( ? ) million.
Incremental FCF for year 1 is $ ( ? ) million.
Incremental FCF for year 2 is $ ( ? ) million.
Incremental FCF for year 3 is $ ( ? ) million.
Incremental FCF for year 4 is $ ( ? ) million.
Incremental FCF for year 5 is $ ( ? ) million.
Incremental FCF for year 6 is $ ( ? ) million.
Incremental FCF for year 7 is $ ( ? ) million.
Incremental FCF for year 8 is $ ( ? ) million.
Incremental FCF for year 9 is $ ( ? ) million.
Explanation / Answer
There is no deviation of FCF for year 0,1,8,9.
Free cash flows from year 2 to year 7 Particulars Amount($) Cost of the truck 2.1 Depreciation 0.42 Tax saving opn depreciation 0.1554 Free cash flows 0.2646