Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $31,000 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $7,750. The grill will have no effect on revenues but will save Johnny’s $15,500 in energy expenses. The tax rate is 40%. Use the MACRS depreciation schedule.
a) What are the operating cash flows in each year? (Year 1, 2, and 3)
b) What are the total cash flows in each year? (Time 0, 1, 2, and 3)