Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $44,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,000. The grill will have no effect on revenues but will save Johnny’s $22,000 in energy expenses per year. The tax rate is 40%. Use the MACRS depreciation schedule.
a. What are the operating cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. What are the total cash flows in each year? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
c. If the discount rate is 11%, should the grill be purchased?
Yes
No