125k views
1 vote
Johnnys lunches is considering purchasing a new, energy efficient grill. The grill will cost $50,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $12,500. The grill will have no effect on revenues but will save Johnny's $25,000 in energy expenses. The tax rate is 30%.

a. What are the operating cash flows in each year?

1 Answer

7 votes

Final answer:

The operating cash flows for each year are $50,000, -$16,667, -$16,667, -$16,667, $12,500.

Step-by-step explanation:

To calculate the operating cash flows each year, we need to consider the cost of the grill, its salvage value, and the savings in energy expenses.

Year 0: The initial cash outflow is the cost of the grill, which is $50,000.

Year 1-3: The annual depreciation expense is calculated by dividing the cost of the grill by the useful life. In this case, it would be $50,000 / 3 = $16,667 per year. There are no other cash flows in these years.

Year 4: The grill is sold for scrap metal, generating a cash inflow of $12,500.

Year 5: There are no cash flows in this year.

User Brad Heller
by
8.3k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.