Johnnys Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $50,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will save Johnnys $25,000 in energy expenses. The tax rate is 30%.

Required:

a. What are the operating cash flows in each year? Year 1 Year 2 Year 3 b. What are the total cash flows in each year? Time 0 Time 1 Time 2 Time 3 c. Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased? NPV of cash flow stream Should the grill be purchased