Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $40,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $10,000. The grill will have no effect on revenues but will save Johnny’s $20,000 in energy expenses. The tax rate is 30%. (LO9-2)

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

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

c. If the discount rate is 12%, should the grill be purchased?