What is the net present value of the project?
Brodigan Corporation has provided the following informationconcerning a capital budgeting project:
Investment required in equipment $450,000
Net annual operating cash inflow $220,000
Tax rate 30%
After-tax discount rate 12%
The expected life of the project and the equipment is 3years and the equipment has zero salvage value. The company uses straight-line depreciation on all equipmentand the depreciation expense on the equipment would be$150,000 per year. Assume cash flows occur at theend of the year except for the initial investments. The company takes income taxes into account in its capitalbudgeting. The net annual operating cash inflow is thedifference between the incremental sales revenue andincremental cash operating expenses.
What is the net present value of the project?
what is the present value of the lease payments?
(Ignore income taxes in this problem.) SchaadCorporation has entered into an 8 year lease for a pieceof equipment. The annual payment under the lease will be $2,500, with payments being made at the beginningof each year.
If the discount rate is 14%, what is the present value of the lease payments?
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