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 $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 39%.

There are three parts to complete this problem.

1. Project the impact on the firm's cash flows of the current plan, that is, the addition of the 2 tank cars in 4 years. The cash flows will be impacted by the initial investment and the depreciation tax shield.

2. Project the impact on the firm's cash flows of the new plan, that is, the addition of the 2 tank cars in 1

year(s). The cash flows will be impacted by the initial investment and the depreciation tax shield.

3. Compute the incremental cash flows by subtracting the old plan's cash flows from the new plan. These are found by subtracting the FCF without expansion from the FCF with expansion.