Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $39,000 and will be depreciated straight-
line over 3 years. It will be sold for scrap metal after 5 years for $9,750. The grill will have no effect on revenues but will save Johnny's
$19,500 in energy expenses. The tax rate is 30%.
Required:
a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 10%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?
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