Johnnys Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $30,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $7,500. The grill will have no effect on revenues but will save Johnnys $15,000 in energy expenses. The tax rate is 30%. Required:

1: What are the operating cash flows in each year?

2: What are the total cash flows in each year?

3: Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

Solve question 3.