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?

(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?

PLEASE SHOW WORK. I don't understand how to do this

What do YOU think ?
While we're happy to HELP we wont do all the work for you.
Show us what you have done and where you are having problems..

I have done an entire test except 4 questions. That's including the one that is posted. I don't understand even where to start. I have a text book but its not making any sense to me.

Quote:

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Originally Posted by Curlyben

What do YOU think ?
While we're happy to HELP we wont do all the work for you.
Show us what you have done and where you are having problems..

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I have done an entire test except 4 questions. That's including the one that is posted. I don't understand even where to start. I have a text book but its not making any sense to me.

You calculate net present value by applying the discount rate for each cash expenditure. For example, if I have to pay someone $1 a year from now, and the discount rate is 14%, then the present value of that dollar is $1/1.14, or $0.877. This is because 87.7 cents invested today for one year with 14% growth would be worth $1 one year from now. Similarly, if I have to pay $1 two years from now, then the value of that payment today is 1/1.4^2, or $0.769. So for this problem you need to figure out the net present value of $2500 to be paid one year from now, plus the net present value of$2500 to be paid two years from now, plus... etc. Hope this helps.