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Should the grill be purchased

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Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $45,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $11,250. The grill will have no effect on revenues but will save Johnny's $22,500 in energy expenses. The tax rate is 30%.

Required:

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

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

Problem c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

Reference no: EM132753218

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