Spartan Stores is expanding operations with the introduction of a new distribution center. Not only will sales
Question:
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 $900,000. Although inventory is expected 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 bonus depreciation in year 1, and Spartan Stores is in the 21 percent marginal tax rate. What is the project’s free cash flow in year 1?
Step by Step Answer:
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty