10.10 Six Twelve, Inc., is considering opening up a new convenience store in dow

Question

10.10

Six Twelve, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is $820,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash-equivalents to revenue to be 0.03 and the ratios of receivables, inventories, and payables to revenue to be 0.05, 0.10, and 0.04, respectively, in the same industry. What is the expected incremental cash flow related to working capital when the store is opened?

Incremental Cash Flow: $ ___________

Explanation / Answer

Accounts receivables $ 41,000 820000*0.05 Add: Inventories $ 82,000 820000*0.1 Less: Accounts payables $ 32,800 820000*0.04 Incremental cash flows $ 90,200

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