Store-Driven Forecasts. The Home Depot is a leading specialty retailer of hardware and home improvement products and is the second-largest retail store chain in the United States. It operates large warehouse-style stores. In 2014 and 2015, The Home Depot invested in five new stores. The following table provides summary hypothetical data for The Home Depot (see textbook case 10.9).
Required
• Use the preceding data for The Home Depot to compute average revenues per store, capital spending per new store, and ending inventory per store in 2015.
• Assume that The Home Depot will add 10 new stores by the end of Year +1. Use the data from 2015 to project Year +1 sales revenues, capital spending, and ending inventory. Assume that each new store will be open for business for an average of one-half year in Year +1. For simplicity, assume that in Year +1, Home Depot’s sales revenues will grow, but only because it will open new stores.
10.10
Projecting Property, Plant, and Equipment. Intel is a global leader in manufacturing microprocessors, which is very capital-intensive. The production processes in microprocessor manufacturing require sophisticated technology, and the technology changes rapidly, particularly with each new generation of microprocessor. As a consequence, production and manufacturing assets in the microprocessor industry tend to have relatively short useful lives. Assume the following selected information relates to Intel’s property, plant, and equipment for 2014 and 2015 (see textbook case 10.10).
Required
Assume that Intel depreciates all property, plant, and equipment using the straight-line depreciation method and zero salvage value. Assume that Intel spends $6,000 million on new depreciable assets in Year +1 and does not sell or retire any property, plant, and equipment during Year +1.
• Compute the average useful life (in years, rounded to two decimals) that Intel used for depreciation in 2015.
• Project total depreciation expense for Year +1 using the following steps:
o Project depreciation expense for Year +1 on existing property, plant, and equipment at the end of 2015.
o Project depreciation expense on capital expenditures in Year +1 assuming that Intel takes a full year of depreciation in the first year of service.
o Sum the results of (1) and (2) to obtain total depreciation expense for Year +1.
• Project the Year +1 ending balance in property, plant, and equipment, both at cost and net of accumulated depreciation.