( Calculating free cash flows ) Decathlon 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 retail stores. As a result of this new distribution center, Decathlon expects a change in EBIT of $1,100,000. Although inventory is expected to drop from $95,000 to $75,000, accounts receivables are expected to climb as a result of increased credit sales from $85,000 to $112,000. In addition, accounts payable are expected to increase from $67,000 to $82,000. This project will also produce $250,000 of depreciation per year, and Decathlon Stores is in the 16 percent marginal tax rate. What is the project's free cash flow in year 1?
( Calculating free cash flows ) Decathlon 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 retail stores. As a result of this new distribution center, Decathlon expects a change in EBIT of $1,100,000. Although inventory is expected to drop from $95,000 to $75,000, accounts receivables are expected to climb as a result of increased credit sales from $85,000 to $112,000. In addition, accounts payable are expected to increase from $67,000 to $82,000. This project will also produce $250,000 of depreciation per year, and Decathlon Stores is in the 16 percent marginal tax rate. What is the project's free cash flow in year 1?
Advanced Engineering Mathematics
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ISBN:9780470458365
Author:Erwin Kreyszig
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Transcribed Image Text:( Calculating free cash flows ) Decathlon 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 retail stores. As a result of this new distribution
center, Decathlon expects a change in EBIT of $1,100,000. Although inventory is expected to
drop from $95,000 to $75,000, accounts receivables are expected to climb as a result of
increased credit sales from $85,000 to $112,000. In addition, accounts payable are expected to
increase from $67,000 to $82,000. This project will also produce $250,000 of depreciation per
year, and Decathlon Stores is in the 16 percent marginal tax rate. What is the project's free cash
flow in year 1?
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