Johnnys lunches is considering purchasing a new, energy efficient grill. the grill will cost $34,000 and will be depreciated straightline over 3 years. it will be sold for scrap metal after 5 years for $8500. the grill will have no effect on revenues but will save Johnnys $17,000. the tax rate is 30%. a. what are the operating cash flows in each year? (years 1, 2, and 3) b. what are the total chash flows in each year? (years 0,1,2,3) c. assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Johnnys lunches is considering purchasing a new, energy efficient grill. the grill will cost $34,000 and will be depreciated straightline over 3 years. it will be sold for scrap metal after 5 years for $8500. the grill will have no effect on revenues but will save Johnnys $17,000. the tax rate is 30%.

a. what are the operating cash flows in each year? (years 1, 2, and 3)

b. what are the total chash flows in each year? (years 0,1,2,3)

c. assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream.

Should the grill be purchased?

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