Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $30,000 and will bedepreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $7,500. The grill will have no effect on revenues but will save Johnny's $15,000 in energy expenses. The tax rate is 30%.

Required:

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

Year Operating Cash Flows

1

2

3

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

Time Total Cash Flows

0

1

2

3

c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?