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Should the grill be purchased

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Reference no: EM132520175

Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $37,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,250. The grill will have no effect on revenues but will save Johnny's $18,500 in energy expenses. The tax rate is 30%.

Required:

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

year 1:

year 2:

year 3:

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

year 0

year 1

year 2

year 3

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: EM132520175

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