Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $43,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,750. The grill will have no effect on revenues but will save Johnny's$21,500 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 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

NPV is also known as Net present Value. It is a capital budgeting technique which helps in decision…

Answered: Johnny's Lunches is considering…

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

Section: Chapter Questions

Problem 1PS

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Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $32,000 and will be depreciated straight- line over 3 years. It will be sold for scrap metal after 5 years for $8,000. The grill will have no effect on revenues but will save Johnny's $16,000 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 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? Complete this question by entering your answers in the tabs below. Required A Required B Required C What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year 1 2 3 Operating Cash Flows
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $38,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,500. The grill will have no effect on revenues but will save Johnny's $19,000 in energy expenses. The tax rate is 30%. Required: What are the operating cash flows in each year? What are the total cash flows in each year? Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? (round answers to 2 decimal places)
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $19,000 and will be depreciated straight-line over 7 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $20,000 in energy expenses. The tax rate is 31 percent. What are the operating cash flows in years 1 to 7? Enter your answer below. Number
The owner of a bicycle repair shop forecasts revenues of $160,000 a year. Variable costs will be $50,000, and rental costs for the shop are $30,000 a year. Depreciation on the repair tools will be $10,000. Prepare an income statement for the shop based on these estimates. The tax rate is 20%. Calculate the operating cash flow for the repair shop using the three methods given below: Dollars in minus dollars out. Adjusted accounting profits. Add back depreciation tax shield.
Eskom, Inc. has 4-year project in South Africa with an annual operating cash flow of $47,500. Eskom spent $21,600 on an Electricity Supply Solar Tower to start the project. At the end of the project, the Electricity Supply Solar Tower will have a book value of $4,340, but can be salvaged for $5,430. If Eskom’s tax rate is 35%, what is the cash flow in Year 4? Note: Net working capital of $3,850 was needed at the start of the project. That money will be recovered at the end of the project. a. $48,699 b.$57,162 c. $54,880 d. $56,399 e. $18,392
You have a chance to invest in a shopping center. The total investment for the purchase of the land and construction of the center is $10,000,000 today. You have calculated the yearly net after tax cash flows from operations as follows: Year 1: $1,500,000 Year 2: 2,000,000 Year 3: 2,250,000 Year 4: 2,500,000 Year 5: 2,750,000 At the end of year 5 you will sell the shopping center for $18,000,000 after taxes. Required: |+ Use the provided Excel spreadsheet to calculate the present value of all the operating after-tax cash flows and the total cash flows for the project assuming you require an 20% R.O.I. Use the attached "PRESENT VALUE TABLE" for your calculations:
Charlie's Hamburgers is considering adding pizza to its menu. The pizza require purchasing cooking equipment on sale for $55,000. The asset has a 6-year life, will produce a cash flow of $17,600 in the first year, $19,000 in the second year, $20, 250 in the third year, $21,750 in the fourth year, 22, 500 in the fifth year, and $23,000 in the sixth year. The cost of capital is 10%. What is the project's Internal Rate of Return (IRR)? Net Present Value (NPV)? and Profitability Index (PI)?
The owner of a bicycle repair shop forecasts revenues of $196,000 a year. Variable costs will be $59.000, and rental costs for the shop are $39.000 a year. Depreciation on the repair tools will be $19.000. a. Prepare an income statement for the shop based on these estimates. The tax rate is 20% Calculate the operating cash flow for the repair shop using the three methods given below Now calculate the operating cash flow 1. Dollars in minus dollars out 2. Adjusted accounting profits, in 3.Add back depreciation tax shield
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $29,000 and will be depreciated straight-line over 8 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $13,000 in energy expenses. The tax rate is 37 percent. What are the operating cash flows in years 1 to 8?

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