Exercise: Cash Flow Estimation Instructions: You are allowed to work in groups of 2-4 students, but you must submit the exercise individually on iLearn before the due date. Please include group member names. You must show your work and complete all parts of the problem to receive credit. Solutions will be posted on iLearn after the due date. Problem: Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $40,000 and will be depreciated according to the 3-year MACRS schedule (allowance percentages 33%, 45%, 15%, 7%). It will be sold for scrap metal after 3 years for $10,000. The grill will have no effect on revenues but will save Johnny's $20,000 in energy expenses each year. The grill will require an increase in net operating working capital of $2,000. The tax rate is 35%. Q1: What is the initial investment cash flow at t=0? Q2: What is the operating cash flow in year 1? The operating cash flow for year 2 equals $19,300. The operating cash flow for year 3 equals $15,100. Q3: What is the total terminal (non-operating) cash flow in year 3? Q4: Calculate the project's net cash flows. If the discount rate is 12%, should the grill be purchased