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What are the total cash flows in each year

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Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $31,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $7,750. The grill will have no effect on revenues but will save Johnny's $15,500 in energy expenses. The tax rate is 30%.

Required:

Question a. What are the operating cash flows in each year? (1,2, 3 year)

Question b. What are the total cash flows in each year? (0,1,2,3 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: EM132483909

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