Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will...

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $12,500. The grill will have no effect on revenues but will save Johnny’s $25,000 in energy expenses per year. The tax rate is 40%. Use the MACRS depreciation schedule.

a. What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What are the total cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expert Solution

jeff jeffy answered 1 year ago

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