Question
Exercise #4:Depreciation, salvage, and NPV. Kostaki's Lunches is considering purchasing a new, energyefficient grill. The grill will cost $42,000 and will be depreciated according to
Exercise #4:Depreciation, salvage, and NPV. Kostaki's Lunches is considering purchasing a new, energyefficient grill. The grill will cost $42,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $10,500. The grill will have no effect on revenues but will save Kostaki's $21,000 per year in energy expenses. The tax rate is 30%. A.What are the operating cash flows in years 1 to 3?
C.If the discount rate is 10%, should the grill be purchased?NPV =
D. How would the answers change if the new grill required holding on hand a $1,000 inventory of spare parts. The inventory would be liquidated when the grill sold.
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