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Calculate the net present value of the cash flow stream

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Point 1: Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $41,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,250. The grill will have no effect on revenues but will save Johnny's $20,500 in energy expenses. The tax rate is 30%.

Question a. What are the operating cash flows in each year?

Question b. What are the total cash flows in each year?

Question c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

Reference no: EM132485549

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