Problem:
Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $20,000 and will be depreciated in an asset class which carries a CCA rate of 30 percent. It will be sold for scrap metal after 3 years for $5,000. The grill will have no effect on revenues but will save Johnny's $10,000 in energy expenses. The firm has other assets in this asset class. The tax rate is 35 percent.
1) What are the operating cash flows in years 1 to 3 years?
2) What are total cash flows in years 1 to 3?
3) If the discount rate is 12 percent, should the grill be purchased?