Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $37,000 and will bedepreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,250. The grill will have no effect on revenues but will save Johnny's $18,500 in energy expenses. The tax rate is 30%.

Required:

a.What are the operating cash flows in each year?

b.What are the total cash flows in each year?

c.Assuming the discount rate is 11%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?