Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $43,000 and will bedepreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,750. The grill will have no effect on revenues but will save Johnny's $21,500 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 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

What are the operating cash flows in each year?

What are the total cash flows in each year?

Assuming the discount rate is 12%, what is the calculated net present value (NPV) of the cash flow stream. Should the grill be purchased?

a.What is the present value of a 3-year annuity of $220 if the discount rate is 6%?

b.What is the present value of the annuity in (a) if you have to wait an additional year for the first payment?