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 annually. 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?

04: Calculate the project's net cash flows. If the discount rate is 12%,

should the grill be purchased?