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 11 ?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 36%.
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?
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