Question: Spartan Stores is expanding operations with the introduction of a
Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales increase but investment in inventory will de-cline due to increased efficiencies in getting inventory to showrooms. As a result of this new distribution center, Spartan expects a change in EBIT of $ 900,000. While inventory is ex-pected to drop from $ 90,000 to $ 70,000, accounts receivables are expected to climb as a result of increased credit sales from $ 80,000 to $ 110,000. In addition, accounts payable are expected to increase from $ 65,000 to $ 80,000. This project will also produce $ 300,000 of depreciation per year, and Spartan Stores is in the 34 percent marginal tax rate. What is the project’s free cash flow in year 1?
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