Question
(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
(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 $940 comma 000. Although inventory is expected to drop from $85 comma 000 to $68 comma 000, accounts receivables are expected to climb as a result of increased credit sales from $90 comma 000 to $150 comma 000. In addition, accounts payable are expected to increase from $70 comma 000 to $83 comma 000. This project will also produce $400 comma 000 of bonus depreciation in year 1 and Spartan Stores is in the 32 percent marginal tax rate. What is the project's free cash flow in year 1?
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