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Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $44,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,000. The grill will have no effect on revenues but will save Johnny’s $22,000 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. If the discount rate is 11%, should the grill be purchased?

Yes

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92741247

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