Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $36,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $9,000. The grill will have no effect on revenues but will save Johnny’s $18,000 in energy expenses. The tax rate is 30%.
Required:
What are the operating cash flows in each year?
Required:
What is the initial investment in the product? Remember working capital.
If the plant and equipment are depreciated over 4 years to a salvage value of zero using straight-line depreciation, and the firm’s tax rate is 40%, what are the project cash flows in each year?
If the opportunity cost of capital is 15%, what is project NPV?
What is project IRR?