Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $48,000 and will...

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $48,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $12,000. The grill will have no effect on revenues but will save Johnny’s $24,000 in energy expenses. The tax rate is 30%.

Required:

a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

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jeff jeffy answered 1 year ago

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