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Accounting

Problem:

Johnny's Lunches is considering purchasing a new, energy efficient grill. The grill will cost $20,000 and will be depreciated in an asset class that carries a CCA rate of 30%. It will be sold for scrap metal after 3 years for $5000. THe grill will have no effect on revenues but will save Johnny's $10000 in energy expenses. The firm has other assets in this asset class. The tax rate is 35%.

Required:

Question 1: What are the operating cash flows in years 1 to 3?

Question 2: What are total cash flows in years 1 to 3?

Question 3: If the discount rate is 12%, should the grill be purchased?

Note: Please show basic calculation

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167230

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