Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will saveJohnny's $25,000 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 11%, 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 ARequired BRequired CWhat are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimalplaces.)Operating CashFlowsYear123

Statement of cash flows: The statement of cash flows records all the sources and use of the cash in…

Answered: nny's $25,0

Business

Accounting

nny's $25,0

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 12P

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Question

Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated straight-
line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will save
Johnny's $25,000 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 11%, 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.)
Operating Cash
Flows
Year
1
2
3

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