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. 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. The tax rate is 35%.
a. What are the operating cash flows in years 1 to 3?
b. What are total cash flows in years 1 to 3?
c. If the discount rate is 12%, should the grill be purchased?