2. a)

Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $21,000 and will be depreciated straight-line over 10 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $8,000 in energy expenses. The tax rate is 36 percent.

What are the operating cash flows in years 1 to 10?

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b)

A project requires an increase in inventories, accounts payable, and accounts receivable of $105,000, $35,000, and $75,000, respectively. If opportunity cost of capital is 1% and the project has a life of 18 years, and the working capital investments will be recovered at the end of the life of the project, what is the effect on the NPV of the project? Enter your answer rounded to two decimal places.

c)

Daily Enterprises is purchasing a $8,000,000 machine. The machine will depreciated using straight-line depreciation over its 8 year life and will have no salvage value. The machine will generate revenues of $7,000,000 per year along with costs of $2,500,000 per year.

If Daily's marginal tax rate is 25%, what will be the cash flow in each of years one to 8 (the cash flow will be the same each year)?

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