(Calculating free cash flows) Spartan Stores is expanding operations with the introduction of a new distribution cente
Posted: Sun Apr 17, 2022 6:23 pm
(Calculating free cash flows) Spartan Stores is expanding
operations with the introduction of a new distribution center. Not
only will sales increase but investment in inventory will decline
due to increased efficiencies in getting inventory to showrooms. As
a result of this new distribution center, Spartan expects a change
in EBIT of $980,000. Although inventory is expected to drop from
$82,000 to $69,000, accounts receivables are expected to climb
as a result of increased credit sales from $87,000 to $81,000.
In addition, accounts payable are expected to increase from
$65,000 to $81,000. This project will also produce $200,000 of
bonus depreciation in year 1 and Spartan Stores is in the 31
percent marginal tax rate. What is the project's free cash flow in
year 1?
operations with the introduction of a new distribution center. Not
only will sales increase but investment in inventory will decline
due to increased efficiencies in getting inventory to showrooms. As
a result of this new distribution center, Spartan expects a change
in EBIT of $980,000. Although inventory is expected to drop from
$82,000 to $69,000, accounts receivables are expected to climb
as a result of increased credit sales from $87,000 to $81,000.
In addition, accounts payable are expected to increase from
$65,000 to $81,000. This project will also produce $200,000 of
bonus depreciation in year 1 and Spartan Stores is in the 31
percent marginal tax rate. What is the project's free cash flow in
year 1?