Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The gr
ID: 2762160 • Letter: J
Question
Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $39,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $9,750. The grill will have no effect on revenues but will save Johnny’s $19,500 in energy expenses per year. The tax rate is 30%. Use the MACRS depreciation schedule.
What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
2
3
What are the total cash flows in each year? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
a.
What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Explanation / Answer
MACR Depreciation Depreciation*.30 Operating Income * Operating Cash Flows (1-.30) 33.33% 12998.7 (39000*33.33%) 3899.61 13650 (19500*.7) 17549.61 (13650+3899.61) 44.45% 17335.5 (39000*44.45%) 5200.65 13650 18850.65 (13650+5200.65) 14.81% 5775.9 (39000*14.81%) 1732.77 13650 15382.77 (13650+1732.77) 7.41% 2 Cash Flows in Each Year Year Cash Flow Salvage Tax Total Cash Flows 0 -39000 -39000 1 19500 -5850 (19500*30%) 13650 2 19500 -5850 13650 3 19500 9750 -5850 23400
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