Problem 9-12 Cash Flows and NPV (LO2)Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $46,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $11,500. The grill will have no effect on revenues but will save Johnny's$23,000 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?Answer is complete but not entirely correct.Complete this question by entering your answers in the tabs below.Required A Required B Required CWhat are the total cash flows in each year?Note: Negative amounts should be indicated with a minus sign. Do not round intermediate calculations. Round your answersto 2 decimal places.TimeTotal Cash Flows0S0.001S20,700.002S20,700.003S20,700.004S16,100.005S0.00

Net Present Value (NPV) is a method used in capital budgeting to evaluate the profitability of a…

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 $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)
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