Incremental FCF for year 0 - 9. Mersey Chemicals manufactures polypropylene that
ID: 2812394 • Letter: I
Question
Incremental FCF for year 0 - 9.
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 35%, 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. (Round to two decimal places and outflows as negative values.)Explanation / Answer
0 1 2 3 4 5 6 7 8 9 Cash flow from purchase 4 years -3.8 0.266 0.266 0.266 0.266 0.266 Cash flow from purchase 1 year -3.8 0.266 0.266 0.266 0.266 0.266 Inceremental cash flow -3.8 0.266 0.266 4.066 0 0 -0.266 -0.266 -0.266