Johnny\'s Lunches is considering purchasing a new, energy-effiecient grill. The

Question

Johnny's Lunches is considering purchasing a new, energy-effiecient grill. The grill will cost $50,000 and will be decpreicated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for 12500. The grill will have no effecto on revenues but will save johnny's 2500 per year in energy expenses. The tax rate is 40%. MACRSj depreciation schedule.

What are the operating cash flows

1___

2___

3____

What are the total cash flows

0____

1____

2____

3____

if the discount rate is 11% should the grill be purchased

Explanation / Answer

The operating cash flows

                                       in case of no revenue is generated saving of exp will be treated as operating cah flow

                                  year

                                    1             2500

   2. 2500

   3.    2500+12500=15000

          the total cash flows

        year

          0.      (50000)

          1.       15000

          2.        15000

          3.       27500

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