1.Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $25,000 and will be depreciated straight-line over 4 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $11,000 in energy expenses. The tax rate is 25 percent.

What are the operating cash flows in years 1 to 4?

ANSER: 9812.50

1b. If the discount rate is 20 percent, what is the net present value of the grill?

Use $9,812.5 for operating cash flow.

ANSWER: 401.96

1c. Given a net present value of $401.96, should Johnny's purchase the grill?

Purchase

Do not Purchase

Question 1c please!